There are two potential locations to construct an urgent care walk-in clinic to serve rural residents. The DN alternative is an option since the clinic is not a requirement; it would be a convenience for future patients. When incremental B/C analysis was applied at a discount rate of 8% per year, using the estimates summarized below, the results were: Rank by increasing total cost: DN, 1, 2

Location 1 vs. DN: B/C = 1.66 Conclusion: eliminate DN
Location 2 vs.1: ΔB/C = 0.50 Conclusion: select location 1

Dr. Thompson, the designated lead physician of the clinic, wanted location 2 to be selected. He has now challenged the estimates, especially the initial cost and disbenefits estimated for location 2. Besides, he calculated the B/C ratio for location 2 itself and obtained a value of 1.58, which he contends is very close to B/C = 1.66 reported for location 1, thus making the selection of location 1 a marginal decision. Answer the following questions for the group of people who must decide if and where to construct the clinic:

(a) Are the B/C ratios for the two locations correct as reported?

(b) Can we select location 2 and still be economically justified?

(c) How much less does location 2 have to cost initially to make it the better location?

(d) If the initial cost of location 2 can€™t be changed, is it possible to increase the benefits to select location 2?

(e) Is the result the same if the disbenefits are completely neglected?

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Locatlon Initial cost, $ Annual M&O cost, $/year Annual benefits, $/year Annual disbenefits, $/year Site suitability, years 2 1,200,000 2,000,000 80,000 75,000 520,000 580,000 90,000 140,000 10 20