A state government is considering construction of a flood control dike having a

Question

A state government is considering construction of a flood control dike having a life span of 15 years. History indicates that a flood occurs every five years and causes $600,000 in damages, on average. If the State uses an MARR of 12% per year, and expects every public works project of have a B/C ratio of at least 1.0, then what is the maximum investment that will he allowed for the dike? Assume that the flood occurs in the middle of each five-year period. $643,000 $854,000 $1,441,000 $1,800,000

Explanation / Answer

For B-C to equal 1:

AWB(12%)=AwC(12%)

AWB(12%) =$600000(F/P,12%,2.5)(A/F,12%,5)

=$126,776

PWB(12%)=$126776(P/A,12%,15)

=$843026

Select option b

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