Option 1 Option 2 Option 3 Benefits $400,000 $550,000 $575,000 Disbenefits $78,000 $125,000 $180,000 Costs $235,000 $390,000 $480,000 Savings $25,000 $65,000 $90,000
The city of Columbus has identified three options for a public recreation area suitable for informal family activities and major organized events. As with most alternatives today, there are benefits, disbenefits, costs, and some savings. These have been estimated with the help of an external planning consultant and are identified in the table below. In each case, these are annualized over a 10-year planning horizon. Solve, a. Determine the B/C ratio for each project. Can you tell from these ratios which option should be selected? b. Determine which option should be selected using the incremental B/C ratio. c. Determine which option should be selected using B − C for each option. d. At what value of Option 2 costs are you indifferent between Option 1 and Option 2?
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