Officials from the City of Galveston and State of Texas gathered to celebrate the start of a beach restoration project that involves dumping sand and adding antierosion structures. The first cost of the project is $30 million with annual maintenance estimated at $340,000. If the restored/expanded beaches attract visitors who will spend $6.2 million per year, what is the conventional B/C ratio at the social discount rate of 8% per year? Assume the State wants to recover the investment in 20 years.
What will be an ideal response?
C = 30,000,000(A/P,8%,20)
= $30,000,000(0.10185)
= $3,055,500 per year
B/C = 6,200,000/(3,055,500 + 340,000)
= 1.83
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