Compute the benefit-cost ratio for each project

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Reference no: EM131910387

A city has $5,000,000 available to spend now on flood-control, and must decide which project to undertake. Project A is expected to generate flood prevention benefits of $460,000 per year for an investment of $3,000,000 with annual operation and maintenance expenses of $57,000. Project B, costing $4,000,000 initially with operation and maintenance expenses of $81,500 per year, is expected to produce annual savings of $613,000 due to reduced flooding. Each project will have a 50 year useful life and no salvage value for each project. Assume an interest rate of 10%. Use the information above to answer the following questions:

a. Draw the cash flow diagrams for each project.

b. Compute the benefit-cost ratio for each project.

c. Which project should the city select? Explain your answer. (Hint: Check ΔB/ΔC)

Reference no: EM131910387

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