A flood control project has a construction cost of $10 million in year 1; $6 million...

A flood control project has a construction cost of $10 million in year 1; $6 million in year 2; and $2 million in year 3, when it is completed. Beginning in year 4, annual O&M costs are $200,000/year. The interest rate is 6%. Benefits also begin accruing in year 4, valued at $1.5 million that year. Thereafter, the benefits grow at a uniform rate of $30,000/year until the end of the project life of 50 years.

Make a cash flow table of costs and benefits over the 50-year project life using excel.
What are the present worth values of the costs and the benefits?
What is the net present value of the project?
The project is feasible if the ratio of benefits to costs, (B/C) > 1. Is the flood control project feasible?

Expert Solution

Rahul Sunny answered 1 year ago

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