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A dam is to be constructed to provide a storage reservoir for a flood control project....

A dam is to be constructed to provide a storage reservoir for a flood control project. The table below has descriptions of costs and benefits for five reservoir capacity options:

Reservoir capacity (acre-feet)

Initial construction costs ($ million)

Average annual O&M cost ($ million)

Average annual benefits ($ million)

50,000

4.5

0.032

0.317

100,000

5.0

0.079

0.761

150,000

8.0

0.127

1.078

200,000

14.0

0.143

1.269

250,000

22.0

0.190

1.332

Assume the project life = 50 years and i = 6%. Determine the reservoir capacity which:

  1. Maximizes value of net benefits
  2. Maximizes the benefit/cost (B/C) ratio
  3. Maximizes the incremental benefit/cost ratio (DB/DC)

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