1. A federal agency is considering expanding a national park by adding recreational facilities. The initial cost of the project will be $1.5 million, with an annual upkeep cost of $50,000. Public benefits have been valued at $300,000 per year, but disbenefits of $200,000 (initial cost) have also been recognized. The park is expected to be permanent. At an interest rate of 6% per year, calculate the Benefit cost ratio?
2. The two highway projects shown below are to be compared using Benefit cost method. Which one, if either, should be build? Use interest rate of 10% per year.
Alternative I Alternative II
First Cost 5,000,000 - 7,000,000
Annual maintenance cost 70,000 - 60,000
Annual benefits 175,000 - 450,000
Annual disbenefits 30,000 - 35,000
Life: both have infinite life