Reference no: EM131506956

Question: An area on the Colorado River is subject to periodic flood damage that occurs, on the average, every two years and results in a $2,000,000 loss. It has been proposed that the river channel be straightened and deepened, at a cost of $2,500,000, to reduce the probable damage to not over $1,600,000 for each occurrence during a period of 20 years before it would have to be deepened again. This procedure would also involve annual expenditures of $80,000 for minimal maintenance. One legislator in the area has proposed that a better solution would be to construct a flood-control dam at a cost of $8,500,000, which would last indefinitely, with annual maintenance costs of not over $50,000. He estimates that this project would reduce the probable annual flood damage to not over $450,000. In addition, this solution would provide a substantial amount of irrigation water that would produce annual revenue of $175,000 and recreational facilities, which he estimates would be worth at least $45,000 per year to the adjacent populace. A second legislator believes that the dam should be built and that the river channel also should be straightened and deepened, noting that the total cost of $11,000,000 would reduce the probable annual flood loss to not over $350,000 while providing the same irrigation and recreational benefits. If the state's capital is worth 10%, determine the B-C ratios and the incremental B-C ratio. Recommend which alternative should be adopted.