Question

Five mutually-exclusive projects consisting of reinforcing dams, levees, and embankments are available for funding by a certain public agency. The following tabulation shows the equivalent annual benefits and costs for each: Project Annual Benefits Annual Costs A $1,800,000 $2,000,000 B $5,600,000 $4.200,000 C $8,400,000 $6,800,000 D $2,600,000 $2,800,000 E $6,600,000 $5,400,000 Assume that the projects are of the type for which the benefits can be determined with considerable certainty and that the agency is willing to invest money in any project as long as the B-C ratio is at least one. Determine the annual worth (AW) of the best project that the public agency will select. The agency’s MARR is 10 % per year and the project lifetimes are each 15 years.

Answer 1

Benefit cost analysis of each project is calculated in excel and screen shot provided below:

agency is willing to invest money in any project as long as the B-C ratio is at least one. So project A and Project D cannot be accepted, because B-C ratio of both project si less than 1.

Project B, Project C and project E can be accepted, because B-C ratio of these three proejct is more than 1.