Question

The City of Jefferson is reviewing the benefits and costs of a potential universal water-metering program. Two options are being considered:
Option 1 – Treated Surface Water Only Benefits of Deferring/Downsizing Water and Sewer Projects, $28.1 million
Costs of Metering, $9.3 million
Option 2 – Treated Surface Water Supplemented by 40 ML/day Groundwater
Benefits of Deferring/Downsizing Water and Sewer Projects, $38.9 million
Costs of Metering and Groundwater Development, $14.7 million
Which option should the city implement, assuming that the city has enough money to fund either project?

Answer 1

Compute Benefit-Cost ratio of Option A as follows:

Compute Benefit-Cost ratio of Option B as follows:

Since, both the options have BC ratio > 1 , we will do incremental analysis to find the correct alternative:

Since, Incremental BC of Option b over option A is greater than 1 i.e 2 > 1, we will select Option B.