A city government is considering two types of town-dump sanitary systems. Design A requires an initial outlay of $400,000 with annual operating and maintenance costs of $50,000 for the next 15 years; design B calls for an investment of $300,000 with annual operating and maintenance costs of $80,000 per year for the next 15 years. Fee collections from the residents would again be $85,000 per year. The interest rate is 8%, and no salvage value is associated with either system.

a. Using the benefitcost ratio BC(i), which system should be selected?

b. If a new design (design C), which requires an initial outlay of $350,000 and annual operating and maintenance costs of $65,000, is proposed, would your answer in part (a) change?

The solution should match: BC_A = 0.88, BC_B = 0.74 for part a.