Reference no: EM133061485

The Newfoundland government is considering three new flood control projects for the Badger area.  Projects A and B consist of permanent dikes.  Project C is a small dam.  The dam will have recreation and irrigation benefits as well as the flood control benefits.  Facts about the three projects are shown in the following table.  Each project has a life of 25 years.  The MARR is 10%. {Assume that each project has a BCR greater than 1}

	Project A	Project B	Project C
First Cost (millions of $)	217	258	416
Annual Benefits (millions of $)	26.5	33.4	58.1
Annual Operating and Maintenance costs (millions of $)	2.3	3	3.3

Part a - Use incremental benefit-cost to choose the best project

What is the benefit-cost ratio on the increment from Project A to Project B (rounded to three decimal points eg. x.xxx)?   ____________

Your above selection is the current best. 

What is the benefit-cost ratio on the increment from the current best project to Project C (rounded to three decimal points eg. x.xx)?    ____________

Which Project is the best choice based on Incremental BCR (Enter either 'A', 'B', or 'C')? __________

Part b - Project C revision.

It is possible that the dam (Project C) will cause some wildlife damage.  This damage might be prevented by an additional expenditure of 24 million dollars when the dam is constructed.  Does this change the choice of the project in part a?  Assume that the additional $24M is an addition to the first cost.

First determine if Project C is feasible.  What is the BCR of project C (rounded to three decimal points eg. x.xxx)?   ____________

Now determine the incremental benefit-cost ratio from Project B to Project C.  If the BCR of C is less than one, assume this is zero.  (rounded to three decimal points eg. x.xxx)?    ____________

If the extra cost to preserve wildlife is included, which project is the best project based on Incremental Benefit-Cost analysis  (Enter either 'A', 'B', or 'C')?   __________