Question

The City of Waterloo is considering the adoption of improvements to Waterloo Park and is presented with three mutually-exclusive options. Option A adds a splash pad which is estimated to offer benefits of $20 million and costs $16 million to build. Option B adds basketball courts has estimated benefits of $26 million and costs of $20 million. Option C is a nature exploration area that is estimated to offer benefits of $10 million and has costs of $2 million. In additional, a fourth option D is an improved path and signage project that has estimated costs of $8 million and standalone benefits of $4 million, but it can be combined with any of the first three, changing their respective benefits as follows: if built with A, it augments its benefits by $16 million, if built with B it increase the benefits of project B by $10 million, but if built with C it reduces the benefits of project C by $2 million.

i. Generate a table with 2 columns: the benefit-cost ratio and net benefits for each possible option.

ii. Which option should be chosen according to the Cost Benefit decision rule?

Answer 1

Option C with D will have negative ratio it means that bear loss. Ratio is 3:4 in negative.

According to above working notes combination of Option A with D will have greater benefit cost ratio that is 1:2

Hence option A with D is preferred.

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