Question

 In a proposed flood control project, there are two possible sites for a dam and storage reservoir, designated as the Willow and Cottonwood sites. One or the other of these sites may be used but not both. A small hydroelectric power development may be added at the Willow site. Certain channel improvements are also considered. Seven alternate projects are set up for analysis and average annual damages due to floods under each plan estimate as follows: Plan Damages A) Willow dam and reservoir alone $100,000 B) Willow dam, reservoir, and powerplant 120,000 C) Willow dam and reservoir, with channel improvement 40,000 D) Willow dam, reservoir, and power plant with channel improvement 60,000 E) Cottonwood dam and reservoir alone 180,000 F) Cottonwood dam and reservoir, with channel improvement 90,000 G) Channel improvement alone 330,000 With no flood control works at all, the average amount of flood damages is estimated as $680,000. The estimated first cost of the Willow dam and reservoir is $5,000,000. The power plant will increase this first cost by $1,000,000. The estimated first cost of the Cottonwood dam and reservoir is $3,750,000. The estimated first cost of the channel improvement is $800,000. In the economic analysis a 100-year life with zero salvage value is to be used for the two dams and reservoirs, a 50-year life with zero salvage value is to be used for the power plant, and a 20-year life with $300,000 salvage value is to be used for the channel improvement. All equivalence calculations are to use a 15%. On the basis of the cost of equal power from a steam electric plant, the "benefits" from the hydroelectric power are estimated to be $200,000 a year. Annual operation and maintenance costs will be: Willow dam and reservoir $60,000 Power plant 25,000 Cottonwood dam and reservoir 50,000 Channel improvement 70,000 Compute a benefit-cost ratio for each of the seven plans of development. Also estimate the IRR for each alterative. Do you recommend that one of these plans be adopted? If so, which one? Why?