A permanent flood-control dam is expected to have an initial cost of $2.8 million and an annual M&O cost of $20,000. In addition, minor reconstruction will be required every 5 years at a cost of $200,000. As a result of the dam, flood damage will be reduced by an average of $310,000 per year. Using an interest rate of 6% per year, the conventional B/C ratio will be closest to: (choose one)
(a) 0.46
(b) 1.02
(c) 1.40
(d) 1.96
B/C = 310,000/[2,800,000(0.06) + 20,000 + 200,000(A/F,6%,5)]
= 310,000/[168,000 + 20,000 + 200,000(0.17740)]
= 310,000/223,480
= 1.39
Answer is (c) 1.40
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