EXAMPLE 10.4 An inland state is presently connected to a seaport by means of a railroad system. The annual goods transported is 1,00,00,000 ton km. The average transport charge is Rs. 30/ton/km. Within the next 20 years, the transport is likely to increase by 10,00,000 ton km per year. It is proposed to broaden a river flowing from the state to the seaport at a cost of Rs. 2,50,00,00,000. This will make the river navigable to barges and will reduce the transport cost to Rs. 10.00/ton/km. The project will be financed by 10% bond at par. There would be some side effects of the change-over as follows. 1. The railroad would be bankrupt and be sold for no salvage value. The right of way, worth about Rs. 3,00,00,000, will revert to the state. 2. 300 employees will be out of employment. The state will have to pay to each of them a welfare cheque of Rs. 48,000/year. 3. The reduction in the income from the taxes on the railroad will be compensated by the taxes on the barges. What is the benefit-cost ratio based on the next 20 years of operation? Also, check whether broadening the river is justified