Example 1 The provincial government is considering a highway project to enhance traffic flow and safety. Moreover, the project would also reduce air pollution, but create some environmental problems. It would also reduce the cost of traffic monitoring, but increase road maintenance costs. Tow alternative proposals for this project were submitted to be considered. The estimated costs and the perceived monetary equivalent values of benefits associated with the two alternatives are given as follows Proposal B Proposal A Construction Costs Demolition Cost Maintenance cost increase Traffic monitoring cost reduction $15,000,000 20,000,000 $ 500,000 $ 300,000/year $ 160,000/year $ 500,000 $ 150,000/year $ 50,000/year The equivalent value of: Environmental problems Pollution reduction 60,000/year $ $ 60,000/year $ 220,000/year $ 500,000/yeari $ 750,000/year $ 220,000/year $ 450,000/yeaer $ Traffic flow enhancements 600,000/year Road safety enhancements The interest rate is "i" and the project life is 40 years (a) Determine the annual equivalent value of the net costs (costs minus savings) to the provincial govemment if Proposal A is implemented and i 8% (b) Determine the equivalent yearly net benefits (benefits minus dis-benefits) derived by the public if Proposal B is implemented and i= 8% (c) The benefit cost ratio for Proposal B, if i = 4% (d) The maximum value ofi that would still qualify Proposal B as economically acceptable