Big City Carl, a local politician, is advancing a project for the construction of a new dock and pier system at the river to attract new commerce to the city. A committee appointed by the mayor (an opponent of Carl's) has developed the following estimates for the effects of the project.
Cost to wreck and remove current facilities ...................... $ 750,000
Material, labor, and overhead for new construction ............. 2,750,000
Annual operating and maintenance expenses ..................... 185,000
Annual benefits from new commerce .............................. 550,000
Annual disbenefits to sportsmen in area ........................... 35,000
Project life .............................................................. 20 years
Interest rate .............................................................. 8%
(a) Using the conventional B/C ratio, determine whether the project should be funded.
(b) After studying the numbers given by the committee, Big City Carl argued that the project life should be at least 25 years and more likely closer to 30 years. How did he arrive at this estimate, and why is he making this statement?