Question
For a certain proposed government project, annual capital costs to the government are $600,000 and annual operation and maintenance costs to the government are $1,400,000.
For a certain proposed government project, annual capital costs to the government are $600,000 and annual operation and maintenance costs to the government are $1,400,000. Annual favorable consequences to the general public of $2,200,000 are partially offset by certain annual adverse consequences of $600,000 to a portion of the general public. What is the B/C ratio if all consequences to any of the general public are counted in the numerator of the ratio and all consequences to the government are counted in the denominator? What will it be if the classification of the $600,000 adverse consequences to the general public is changed from a disbenefit to a cost? If the $1,400,000 operation and maintenance cost to the government is changed from a cost to a disbenefit? If both changes are made? Regardless of the classification of these two items, the benefits are $400,000 less than the costs. However, this is a project that will be of great advantage to certain persons in the general public who are promoting it enthusiastically. These persons have argued that irreducibles favorable to the project are so important that the project should be undertaken even though the estimated benefits are somewhat less than the estimated costs. Which classification of these two items will make the project appear to be the most favorable by giving it a B/C ratio nearest to unity? Which classification will be the least favorable to the project?
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