Two relatively inexpensive alternatives are available for reducing potential earthquake damage at a top secret government research site. The cash flow estimates for each alternative are given below. At an interest rate of 8% per year, use the B/C ratio method to determine which one should be selected Use a 20-year study period, and assume the damage costs would occur in the middle of the study period, that is, in year 10. Alternative 1 Alternative 2 Initial cost, $ 600,000 1,100,000 Annual maintenance, $/year 50,000 70,000 Potential damage costs, $ 950,000 250,000
Two relatively inexpensive alternatives are available for reducing potential earthquake damage at a top secret government research site. The cash flow estimates for each alternative are given below. At an interest rate of 8% per year, use the B/C ratio method to determine which one should be selected Use a 20-year study period, and assume the damage costs would occur in the middle of the study period, that is, in year 10. Alternative 1 Alternative 2 Initial cost, $ 600,000 1,100,000 Annual maintenance, $/year 50,000 70,000 Potential damage costs, $ 950,000 250,000
Chapter1: Making Economics Decisions
Section: Chapter Questions
Problem 1QTC
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Two relatively inexpensive alternatives are available
for reducing potential earthquake damage at a
top secret government research site. The cash flow
estimates for each alternative are given below. At
an interest rate of 8% per year, use the B/C ratio
method to determine which one should be selected Use a 20-year study period, and assume the damage
costs would occur in the middle of the study
period, that is, in year 10.
Alternative 1 Alternative 2
Initial cost, $ 600,000 1,100,000
Annual maintenance, $/year 50,000 70,000
Potential damage costs, $ 950,000 250,000
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