Question

In a proposed flood control project, there are two possible sites, A and B, for a dam and storage reservoir. One or the other of these sites may be used but not both. Certain channel improvement is also considered; this will increase the capacity of the stream to carry flood discharge. Estimated first costs, lives, and annual operation and maintenance costs are as follows:

	Site A	Site B	Channel Improvement
First cost	$6,000,000	$8,000,000	$1,000,000
Life	75 years	75 years	25 years
Annual O & M	$100,000	$140,000	$230,000

Annual capital recovery costs are to be computed using an interest rate of 5.5%. Assume zero salvage values at the end of the estimated lives.

The average annual amount of damages due to floods is estimated under various possible plans of development, as follows:

No flood control works at all	$1,200,000
Development at site A only	380,000
Development at site B only	260,000
Channel improvement only	520,000
Site A plus channel improvement	200,000
Site B plus channel improvement	120,000

Compute the benefit to cost ratio for each of the five plans of development as compared to the alternative having no flood control (i.e. what is the derived benefit between an alternative and having no flood control). Assume that the annual costs of a dam and reservoir plus channel improvement alone. Compute any incremental benefit to incremental cost ratios for the combined projects as needed. Which plan of development, if any, would you recommend? Justify your answer using the engineering economics calculations you have performed.

3. A number of years have gone by with no flood control structures put in place for the flood control projects noted in problem 2. The estimated first costs, lives, and annual operation and maintenance costs are the same as stated in problem 2. The average annual damages without flood control are now double that shown in problem 2 and the interest rate for the projects is now 8%. Using these changes in data, calculate the benefit to cost ratios and incremental benefit to incremental cost ratios necessary to choose an alternative. Which plan to your recommend? Justify your answer using the engineering economics calculations you have performed