EXAMPLE 10.2 A state government is planning a hydroelectric project for a river basin. In addition to the production of electric power, this project will provide flood control, irrigation and recreation benefits. The estimated benefits and costs that are expected to be derived from this project are as follows: Initial cost = Rs. 8,00,00,000 Annual power sales = Rs. 60,00,000 Annual flood control savings = Rs. 30,00,000 Annual irrigation benefits = Rs. 50,00,000 Annual recreation benefits = Rs. 20,00,000 Annual operating and maintenance costs = Rs. 30,00,000 Life of the project = 50 years Check whether the state government should implement the project (Assume i = 12%) EXAMPLE 10.3 Two mutually exclusive projects are being considered for investment. Project Al requires an initial outlay of Rs. 30,00,000 with net receipts estimated as Rs. 9,00,000 per year for the next 5 years. The initial outlay for the project A2 is Rs. 60,00,000, and net receipts have been estimated at Rs. 15,00,000 per year for the next seven years. There is no salvage value associated with either of the projects. Using the benefit cost ratio, which project would you select? Assume an interest rate of 10%