The Department of Defense is considering three sites in the National Wildlife Preserve for extrac­tion of rare metals. The cash flows associated with each site are summarized. The extraction period is limited to 5 years and the interest rate is 10% per year. Use the B/C method to determine which site, if any, is acceptable. The monetary unit is $ million.


Calculate total costs and rank sites; benefits are direct

Cost A = 50(A/P,10%,5) + 3
= 50(0.26380) + 3
= 16.190

Cost B = 90(A/P,10%,5) + 4
= 90(0.26380) + 4
= 27.742

Cost C = 200(A/P,10%,5) + 6
= 200(0.26380) + 6
= 58.760

Ranking: DN, A, B, C

Determine B/C for all sites initially

Site A: B/C = (B-D)/C
= (20 – 0.5)/16.190
= 1.20 Acceptable

Site B: B/C = (29 – 2.0)/27.742
= 0.97 Not acceptable


Site C: B/C = (61 – 2.1)/58.760
= 1.00 Acceptable

Compare A vs. DN; then C vs. A or DN; B was eliminated

A vs. DN: B/C = 1.20 eliminate DN

C vs. A: ?B = 61 – 20 = 41
?D = 2.1 - 0.5 = 1.6
?C = 58.76 – 16.19 = 42.57

?B/C = (41 – 1.6)/42.57
= 0.93 eliminate C

Select site A

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