A city government is considering two types oftown-dump sanitary systems. Design A requires aninitial outlay of $400,000 with annual operating andmaintenance costs of $50,000 for the next 15 years;design B calls for an investment of $300,000 withannual operating and maintenance costs of $80,000per year for the next 15 years. Fee collections fromthe residents would again be $85,000 per year. Theinterest rate is 8%, and no salvage value is associatedwith either system.(a) Using the benefit–cost ratio BC(i), which systemshould be selected?M16_PARK9091_06_GE_C16.indd 901 10/22/15 5:22 PM902 Chapter 16 Economic Analysis in the Service SectIf a new design (design C), which requires aninitial outlay of $350,000 and annual operatingand maintenance costs of $65,000, is proposed,would your answer in part (a) change?
A city government is considering two types of
town-dump sanitary systems. Design A requires an
initial outlay of $400,000 with annual operating and
maintenance costs of $50,000 for the next 15 years;
design B calls for an investment of $300,000 with
annual operating and maintenance costs of $80,000
per year for the next 15 years. Fee collections from
the residents would again be $85,000 per year. The
interest rate is 8%, and no salvage value is associated
with either system.
(a) Using the benefit–cost ratio BC(i), which system
should be selected?
M16_PARK9091_06_GE_C16.indd 901 10/22/15 5:22 PM
902 Chapter 16 Economic Analysis in the Service SectIf a new design (design C), which requires an
initial outlay of $350,000 and annual operating
and maintenance costs of $65,000, is proposed,
would your answer in part (a) change?
Trending now
This is a popular solution!
Step by step
Solved in 6 steps with 3 images
