Question

Consider the following alternative flood containement systems and the associated construction costs, flood damage costs and probabilities of flooding. Select the chepest overall alternative. Serrvice life is 40 years. The rate is 4% per year.

Flood Control Alt.	Construction Cost $	Flooding Damage Cost $	Flood probability
None	0	5,000,000	1/5
Alt A	200,000	1,000,0000	1/20
Alt B	350,000	500,000	1/40
Alt C	600,000	200,000	1/100
Alt D	950,000	100,000	1/300

Answer 1

The cheapest overall alternative is none alternative as the present value of cash outflow is least.

But if we talk about some alternative where we are doing some construction than the cheapest alternative is "alternative A" . As it's Present value of outflow is $4947500 which is less than other alternative where we are doing construction.