Please answer #1, #3, and #5. its greatly appreciated!!! Flood Drainage/Mitigation Project Flooding along the Arkansas River (referred to as 'river' in the following) has caused the Army Corps of Engineers (referred to as 'Corps' in the following) to evaluate some of the drainage plans along the river. The Corps is considering three proposals for increasing the capacity of the existing main drainage canal in an agricultural region of Oklahoma. Meandering river patterns, environmental concerns and new technology limits the study period to 35 years. Proposal A/Plan A (Existing System) Proposal A requires dredging the existing canal to remove sediment and weeds that have accumulated during the previous 5 years' operation. The initial capacity of the canal will have to be maintained near its design peak flow because of expected increased water flows. The existing dredge equipment was purchased 5 years ago for $650,000. If sold today the market value of similar equipment would be around $250,000. Prices for new equipment remain stable at $650,000. Dredging equipment has a 10-year life with a $50,000 salvage value at end of its useful life, EOY 10. When purchased 5 years ago the vendor predicted the annual operating costs, AOC, would be $30,000 per year. However, the vendor estimated the AOC for this equipment would increase at 4% per year for the remaining 5 years of its useful life, N. (EOY 6 to 10) The vendor also predicted that AOC for any new equipment would behave in the same manner. To control weeds in the canal itself and along the banks, environmentally safe herbicides will be sprayed prior to the traditional spring run-off season. The yearly cost of the weed control program is expected to be $90,000 per year. Because of public sensitivity to the use of herbicides the Corps believes that this method of removing sediment will last for only another 10 years. Since the existing equipment is already 5 years old, new but similar equipment will have to be purchased in 5 years. (EOY 5) The newly purchased equipment (EOY 5) will be used until EOY 10 at which time it will be sold at a value to fully recover the EOY 5 initial investment. Proposal/Plan B Proposal B is to line the canal with concrete at an initial cost of $2 million spread over 3 years. (One million in EOY 0, $800,000 in EOY 1 and $200,000 in EOY 2.) Even though the project is expected to be completed in 3 years, it will be considered fully capable after the end of this year (EOY 0). Since this proposal follows the existing route, the current system (discussed as part of proposal A) will remain operational until the end of the current year, EOY 0. Once complete, the lining is assumed to be permanent, but minor maintenance will be required every year at a cost of $8000 starting at EOY 1. This annual expense will remain constant for 5 1

Flood Drainage/Mitigation Project Flooding along the Arkansas River (referred to as 'river' in the following) has caused the Army Corps of Engineers (referred to as 'Corps' in the following) to evaluate some of the drainage plans along the river. The Corps is considering three proposals for increasing the capacity of the existing main drainage canal in an agricultural region of Oklahoma. Meandering river patterns, environmental concerns and new technology limits the study period to 35 years. Proposal A/Plan A (Existing System) Proposal A requires dredging the existing canal to remove sediment and weeds that have accumulated during the previous 5 years' operation. The initial capacity of the canal will have to be maintained near its design peak flow because of expected increased water flows. The existing dredge equipment was purchased 5 years ago for $650,000. If sold today the market value of similar equipment would be around $250,000. Prices for new equipment remain stable at $650,000. Dredging equipment has a 10 -year life with a $50,000 salvage value at end of its useful life, EOY 10. When purchased 5 years ago the vendor predicted the annual operating costs, AOC, would be $30,000 per year. However, the vendor estimated the AOC for this equipment would increase at 4% per year for the remaining 5 years of its useful life, N. (EOY 6 to 10) The vendor also predicted that AOC for any new equipment would behave in the same manner. To control weeds in the canal itself and along the banks, environmentally safe herbicides will be sprayed prior to the traditional spring run-off season. The yearly cost of the weed control program is expected to be $90,000 per year. Because of public sensitivity to the use of herbicides the Corps believes that this method of removing sediment will last for only another 10 years. Since the existing equipment is already 5 years old, new but similar equipment will have to be purchased in 5 years. (EOY 5) The newly purchased equipment (EOY 5) will be used until EOY 10 at which time it will be sold at a value to fully recover the EOY 5 initial investment. Proposal/Plan B Proposal B is to line the canal with concrete at an initial cost of $2 million spread over 3 years. (One million in EOY 0,$800,000 in EOY 1 and $200,000 in EOY 2.) Even though the project is expected to be completed in 3 years, it will be considered fully capable after the end of this year (EOY 0). Since this proposal follows the existing route, the current system (discussed as part of proposal A) will remain operational until the end of the current year, EOY 0. Once complete, the lining is assumed to be permanent, but minor maintenance will be required every year at a cost of $8000 starting at EOY 1 . This annual expense will remain constant for 5 1 years. After the 5 -year period (EOY 6 ) annual expenses will begin to increase at a 1% per year rate until EOY 25 . The useful life of proposal B is 25 years. In addition, lining repairs will have to be made every 5 years starting in EOY 5 at a cost of $30,000 for each event. Lining repairs will be considered part of the operating expenses for proposal B. Proposal/Plan C Proposal C is to construct a new pipeline along a different route. Estimates are an initial capital cost of $6 million ( $4M in EOY 0 and 2M in EOY 1 ) Even though the project is expected to be completed in 2 years, it will be considered fully capable after the end of this year (EOY 0 ). Since this proposal follows a different route, the current system (discussed as part of proposal A) will remain operational until the end of the current year, EOY 0. Annual operating costs for maintenance and right of way fees will be $9000 per year for the 35 year life of the pipeline. In addition, there is a required internal ultrasonic inspection for corrosion every 10 years at a cost of $40,000 for each event starting at EOY 10 . This is considered an operating expense. Savings The estimated annual savings for adopting plans A or B to the current flood drainage system will be about $35,000 per year on average clean-up costs for this flood plain area. By adopting proposal, A or B, these savings are expected to increase about 1% per year. However, proposal C, because of its more radical solution, would likely save on average $60,000 per year in cleanup costs with an estimated increase of 1% per year over its 35 -year useful life. Disposal Proposal B has a $300,000 disposal cost at EOY 25 . Proposal C has a $1M disposal cost at EOY 35. These costs will be incurred only if the B or C's project terminates. Study Period, T The study period for the drainage system is 35 years. Interest Rate The Corps uses an interest rate of 5% APR. Additional Information The Corps realizes that the current system of dredging and the annual application of herbicides is not feasible (nor repeatable) over the 35-year study period. It is estimated that proposal A cannot continue past EOY 10. Since the study period is 35 years the Corps must consider a 2 combination of proposals. Hence the following plans are being considered by the Corps to cover the 35 -year study period. Plan A+B This plan continues the existing proposal A until EOY 10. At EOY 10 proposal B will begin implementation. The cost estimates for the individual parts of this combination will remain as discussed above. Proposal A will incur operating costs during EOY 10 as proposal B begins implementation. Equipment used for A will be purchased as planned in proposal A in EOY 5 but sold at EOY 10 to fully recover its initial cost. A major benefit of this plan is to avoid the costs of storing the herbicides. This cost has not been considered as part of this analysis. Plan B only (Extended Plan B) The Corps could immediately implement plan B. Plan B would be fully operational on EOY 1. However, plan A would still be in use during the EOY 0 . The Corps notes that the 25 -year useful life of this plan does not fully cover the study period. To this extent the Corps estimates that a $2M upgrade (capital cost) at EOY 25 would likely extend the life plan B until EOY 35 . An additional benefit to the upgrade is to restore the annual operating costs to $8,000 beginning at EOY 26. The AOC cost escalation would be the same as the initial construction period. Another benefit would be the elimination of the $300,000 disposal cost at EOY 25 . This disposal cost would be 'pushed' to EOY 35. Case Deliverables 1. What is the equivalent worth, EW, of each of the plans over the 35 -year study period? 2. Which of the proposals/plans is the best economic choice for the Corps? Be sure to explain your answer in terms of an economic analysis. 3. What market value, MV10, would the Corps have to receive in EOY 10 to fully recover the cost of the dredging equipment purchased in EOY 5 ? 4. Create a cash flow diagram for plan A+B. 5. What would the savings generated by extended plan B have to be to be indifferent to the EW of plan C? 6. Create a spider plot for your choice made as part of deliverable 1 and 2. Use initial cost, annual cost, and savings as the decision criteria. 7. Is the best economic choice the best overall choice with respect to flood control. Discuss other factors that the Corps should consider as you prepare this analysis. 3 Exhibit 1: Cost/Savings estimates for Each Proposal