Which option should be chosen

Reference no: EM132171397

Question: The city water authority must choose among three options for a levee used to control local flooding. Regardless of which option is chosen, the levee will be replaced in 10 years. The first option is to completely rebuild the levee at a cost of $150,000. If completely rebuilt, the levee's chance of failure is 10% over the next 10 years. The second option is to repair the levee at a cost of $35,000. If this option is chosen, the levee will require another repair job in 5 years at a present cost of $27,750. If the levee is repaired, the chance of failure is estimated to be 28%. The third option is to do nothing to the levee. If nothing is done to the levee, the chance of failure is estimated to be 60%. Weighted by flood size and timing over the 10 years, the expected present cost of a levee failure is $400,000. Which option should be chosen?

Reference no: EM132171397

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