Question: A nonprofit government corporation is considering two alternatives for generating power: Alternative A. Build a coal-powered generating facility at a cost of $20,000,000. Annual power sales are expected to be $1,000,000 per year. Annual operating and maintenance costs are $200,000 per year. A benefit of this alternative is that it is expected to attract new industry, worth $500,000 per year, to the region. Alternative B. Build a hydroelectric generating facility. The capital investment, power sales, and operating costs are $30,000,000, $800,000, and $100,000 per year, respectively. Annual benefits of this alternative are as follows:
The useful life of both alternatives is 50 years. Using an interest rate of 5%, determine which alternative (if either) should be selected according to the conventional B-C-ratio method.