"The U.S. Department of Interior is planning to build a dam and construct a hydroelectric power plant. In addition to producing electric power, this project will provide flood control, irrigation, and recreational benefits. The estimated benefits and costs expected to be derived from the three alternatives under consideration are listed as follows: Design 1 - Initial invesment = $211 million - Annual recurring benefits = $40 million - Annual recurring costs = $15 million Design 2 - Initial investment = $113 million - Annual recurring benefits = $20 million - Annual recurring costs = $7 million Design 3 - Initial investment = $111 million - Annual recurring benefits = $19 million - Annual recurring costs = $8 million The interest rate is 2.8%, and the life of the project is 31 years. If the three designs are mutually exclusive, which design is the best alternative? You can use incremental benefit-cost ratios or present worth calculations. Enter 1, 2, or 3 as your answer."

Correct Answer: 1