Suppose There Are Two Mutually Exclusive Public Alternatives a and B

question 47

Essay

Suppose there are two mutually exclusive public alternatives A and B. They are characterized by the following data:
Alternative A:
First cost = 10 million
Annual benefits = $2 million
Annual operating costs =$1 million
Alternative B:
First cost = $15 million
Annual benefits = $3.5 million
Annual operating costs = $1 million
Both alternatives have a 10-year service life. Social discount rate is 7%. Which alternative should be chosen on the basis of the conventional BCR?

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