Review problem on the floodproofing

Reference no: EM132165064

Question: A factory building is located in an area subject to occasional flooding by a nearby river. You have been brought in as a consultantto determine whether floodproofing of the building is economically justified. The alternatives are as follows:

A. Do nothing. Damage in a moderate flood is $10,000 and in a severe flood, $25,000.

B. Alter the factory building at a cost of $15,000 to withstand moderate flooding without damage and to withstand severe flooding with $10,000 damages.

C. Alter the factory building at a cost of $20,000 to withstand a severe flood without damage. In any year the probability of flooding is as follows: 0.70, no flooding of the river; 0.20, moderate flooding; and 0.10, severe flooding. If interest is 15% and a 15-year analysis period is used, what do you recommend?

Reference no: EM132165064

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