g the B/C ratio method  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 buil

EBK CONTEMPORARY FINANCIAL MANAGEMENT
14th Edition
ISBN:9781337514835
Author:MOYER
Publisher:MOYER
Chapter14: Capital Structure Management In Practice
Section14.A: Breakeven Analysis
Problem 8P
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Using the B/C ratio method 

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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