An Army Corps of Engineers project for improving navigation on the Ohio River will have an initial cost of $6,500,000 and annual maintenance of $130,000. Benefits for barges and paddle wheel touring boats are estimated at $820,000 per year. The project is assumed to be permanent and the discount rate is 8% per year. Determine if the Corps should proceed with the project.
What will be an ideal response?
AW of C = 6,500,000(0.08) + 130,000
= $650,000
AW of B = $820,000
B/C = 820,000/650,000
= 1.26
Economically justified, since B/C > 1.0
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