Question

Lubbock city council is planning to growing city. Its estimated initial farms thereby inconveniencing the farm Planning to build a new water pipeline to meet the water demands of the cost is $300K. However, this pipeline is expected to run across a few encing the farmers, who are collectively estimated to lose $100K in revenue tion (year 0) due to lost acreage and planning for the construction, for "pensated. Their revenues are expected to return to normal starting first year of instruction is complete, the annual savings (benefits) to the city's reduced water prices are estimated at $40K/year. The annual maintenance costs peline are expected to be $10K/year. The pipeline is expected to have a 40-year ate and The city council uses the modified B/C ratio and a 5% MARR to evaluate its projects. Should the city construct the pipeline? Use the NPW or EUAW approach but not bo "? during the year of construction (year 0) due to lost acreage and plan which they will be compensated. Their reven operation. Once the pipeline construction is complete, the annual population through reduced water prices are estan of the pipeline are expected to be $10K/year.

Answer 1

COSTS:
Estimated initial cost: $300,000

Farmers’ initial loss: $100,000

Maintenance Cost for 40 years: $10,000[(1.05) + (1.05)² + …… + (1.05)⁴⁰] = $1,140,950.231

BENEFITS:

Savings for 40 years: $40,000[(1.05) + (1.05)² + …… + (1.05)⁴⁰] = $4,563,800.924

Salvage Value: $20,000

Thus, B-C ratio = (Total Benefits)/(Total Cost) = (4583800.924)/(1540950.231) = 2.9745