To reduce flood damage in a river valley in Southern Luzon, a flood control dam is being proposed for construction. The initial cost is estimated to be P4,600,000, with annual maintenance and inspection costs of P24,000. Every 5 years, minor reconstruction work will be undertaken on the dam at a cost of P150,000. If the dam is built, flood damage is expected to be reduced from P800,000 to P100,000 annually. Assuming the dam to be permanent and the interest rate is 8%, should the dam be built?
To reduce flood damage in a river valley in Southern Luzon, a flood control dam is being proposed for construction. The initial cost is estimated to be P4,600,000, with annual maintenance and inspection costs of P24,000. Every 5 years, minor reconstruction work will be undertaken on the dam at a cost of P150,000. If the dam is built, flood damage is expected to be reduced from P800,000 to P100,000 annually. Assuming the dam to be permanent and the interest rate is 8%, should the dam be built?
Chapter1: Financial Statements And Business Decisions
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BENEFIT-COST RATIO ANALYSIS
Transcribed Image Text:To reduce flood damage in a river valley in Southern
Luzon, a flood control dam is being proposed for
construction. The initial cost is estimated to be P4,600,000,
with annual maintenance and inspection costs of P24,000.
Every 5 years, minor reconstruction work will be
undertaken on the dam at a cost of P150,000. If the dam is
built, flood damage is expected to be reduced from
P800,000 to P100,000 annually. Assuming the dam to be
permanent and the interest rate is 8%, should the dam be
built?
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