A water distribution system using a new source of water is under consideration and found to have an unfortunately high net annual cost of \(\$ 5,750,000\) and net benefits of \(\$ 4,250,000\). Officials decide that by purchasing the small rural water system providing annual benefits of \(\$ 450,000\), by paying an annual equivalent of \(\$ 260,000\), and then annexing certain areas, the city will be of a size to qualify for federal assistance, where the federal government will pay 70 percent of the new distribution system. Officials argue that the benefit/cost ratio is now a whopping \((\$ 4,250,000+\$ 450,000) /(1-0.7)(\$ 5,750,000)=2.47\). A sharp-eyed commissioner contends the real ratio should be calculated as \((\$ 4,250,000+\$ 450,000) /(\$ 260,000+(1-0.7)(\$ 5,750,000))=2.37\).

a. Is either of these ratios right? Discuss your reasoning from different points of view.

b. Determine the \(B / C\) ratio from the standpoint of an impartial citizen outside the community.