5 15 pts The site for a major county public works project is

5. (15 pts) The site for a major county public works project is under consideration. Four sites have met all the county\'s criteria for the project, and a benefit-cost analysis is underway to determine which site will provide the best benefit-cost ratio. The present worths of the net benefits, capital investments, and net O&M; costs are given in the table below for project. First, determine the B/C ratio for each project individually. Then, using incremental B/C analysis, determine which of the sites should be chosen. each Project PW of Net Benefits PW of Capital Costs PW of Net 0&M; Costs $21 Million $16 Million $20 Million $28 Million $12 Million $9 Million $18 Million $21 Million $4 Million $3 Million $4 Million $5 Million

Solution

BC Ratio A B C D 1. PW of Net Benefits 21 16 20 28 2. PW of Net O&M Costs 4 3 4 5 3. Net Benefit (1-2) 17 13 16 23 4. PW of Capital Costs 12 9 18 21 5. BC Ratio (3/4) 1.42 1.44 0.89 1.10 Cost Order II I Reject III Incremental BC Ratio BC Ratio more than 1 select Site with Higher Cost BC Ratio more than or equal to 1 select Site with lower Cost Cost Order = B A D and C is rejected ( BC Ratio less than 1) A to B D to A 1. Increamental Benefit 4 6 2. Increamental Cost 3 9 Incremental BC Ratio (1/2) 1.33 0.67 Keep A A Higher Cost Site Lower Cost Site Site A should be choosen