The federal government is planning a hydroelectric project for a river basin. The project will provide electrical energy to the local area and to the grid. With some enhancements to the basic plan, this project can also provide flood control, irrigation, and recreation benefits. Three enhancement alternatives, in addition to doing nothing, are considered. Each will have more or less cost and impact as follows:

The interest rate is 5 percent, and the life of each of the enhancement alternatives is estimated to be 50 years.

a. Calculate both the benefit/cost ratio and the value of \(B-C\) for each alternative. Is the best alternative the one with the maximum benefit/cost ratio?

b. If the interest rate is 8 percent, which alternative will be preferred?

c. Perform an incremental \(B / C\) analysis to confirm your answer to Part b.

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Alternative DN A B C Initial Cost $0 $2,000,000 $4,500,000 $9,000,000 Annual Operating and Maintenance Cost $0 $200,000 $280,000 $450,000 Flood Control Savings to Community $0 $250,000 $350,000 $500,000 Irrigation Benefits to Community $0 $350,000 $450,000 $600,000 Recreation Benefits to Community $0 $100,000 $200,000 $350,000