A flood control project has a construction cost during the first year of $10 million, during the second year $6 million, and during the third year $2 million. It is completed at the end of the third year and thereafter incurs an annual operating cost of $200,000 per year. Benefits from the project also begin during the fourth year and are valued at $1.5 million in that year, growing at a 2% compound rate of increase out to the planning horizon (analysis period) of 50 years. The interest rate is taken to be 6%. Carefully draw the cash flow diagram. What is the present worth of cost? What is the present worth of benefit? Is this a viable project economically?

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Solution Cash flow in year ... View the full answer