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A flood control study for a urban river has developed three alternatives. The initial costs are...

A flood control study for a urban river has developed three alternatives. The initial costs are $5,000,000, $8,000,000, and $10,000,000 for alternatives A, B, and C, respectively. The annual maintenance costs are $200,000, $350,000, and $600,000 for alternatives A, B, and C, respectively. Once flooding occurs, the damage is $1,000,000. If alternatives A, B, and C can prevent 30%, 70%, and 80% of annual probability of occurrence, respectively, which alternative should be selected? The life span of the project is 30 years and the annual interest rate is 6 %.

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Answer #1

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Alternative B should be selected.

Alternative B is least cost option.

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