The U.S. Army Corps of Engineers is considering the feasibility of constructing

Question

The U.S. Army Corps of Engineers is considering the feasibility of constructing a small flood control dam in an existing arroyo.  The initial cost of the project will be $2.2 million, with inspection and upkeep costs of $10,000 per year.  In addition, minor reconstruction will be required every 15 years at a cost of $65,000.  If flood damage will be reduced from from the present cost of $90,000 per year to $10,000 annually, use the benefit/cost method to determine if the dam should be constructed.  Assume that the dam will be permanent and the interest rate is 12% per year.

Explanation / Answer

I'm not sure what the interest rate is supposed to be on, but each year's average cost will be $14,333, which can be used to create the equation $80000x=$14333x+$2200000 where x is in years and the number of years for the dam to create a benefit is 33.5.  I do not know if this is considered to make the dam feasible, but if it is to exist indefinitely, it seems it will be.

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