Reference no: EM133009639

The City of Seattle, Washington is evaluating whether to build a new water plant facility. The materials to build the plant would cost $350 million. It would take 8 million hours of labor to build the plant and the average wage rate of the laborers would be $30 per hour. The city anticipates that the costs to operate and maintain the plant would be $20 million in personnel costs and $8 million in non-personnel costs in the first year. The personnel costs would rise by 3% per year while the non-personnel costs are expected to rise by 2%. The water plant is expected to save 3 lives per year compared to if it was not built due to the significant improvement of water quality offered from the new water plant. The wage differential for a job that increases the probability of death by 1/100,000 is $80. The city expects to receive incremental water fees from the new facility of $30 million per year growing at 1% per year. Assuming the City of Seattle's borrowing rate is 4%. Perform a cost benefit analysis on this proposed project over a 30-year period providing a recommendation and numerical justification for your recommendation.

Problem 1: What type of approach was used to estimate the lives savings benefits in your analysis?