9. A dam is under consideration. The initial investment, based on dam height, is
ID: 1127333 • Letter: 9
Question
9. A dam is under consideration. The initial investment, based on dam height, is shown below. Also shown are estimated benefits in the form of annual savings from reduced flood damage. Based on a benefit/cost ratio analysis, which dam height, if any, should be selected? Use 8 % and assume an infinite life for the dam. (a) 22' (b) 24' (c) 26 (d) None Initial Benefits in the form of annual Dam cost (million $) savings (million $/yr) height 24 26 21 25.6 29.4 1.6 2.0 2.3 Motors are $1 million annually. The main product h hn Breakeven quantity per yExplanation / Answer
Dam 22:
PV of cost = 21
PV of benefit = 1.6/0.08 = 20
B/C ratio = 20/21 = 0.95
Dam 24:
PV of cost = 25.6
PV of benefit = 2/0.08 = 25
B/C ratio = 25/25.6 = 0.97
Dam 26:
PV of cost = 29.4
PV of benefit = 2.3/0.08 = 28.75
B/C ratio = 28.75/29.4 = 0.98
As B/C ratio of neither dam is greater than 1, none of them should be selected.
However, out of these, Dam 26 can be selected as it has highest B/C ratio among the three.
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