The U.S. Bureau of Reclamation is considering a project to extend irrigation canals into a desert area. The initial cost of the project is expected to be $1.5 million, with annual maintenance costs of $25,000 per year. Please show work.
a) If the agricultural revenue is expected to be $175,000 per year, do a B/C analysis to determine whether the project should be undertaken, using a 20-year study period and a discount rate of 6%/year.
b) Calculate the B/C ratio if the canal must be dredged every 3 years at a cost of $60,000 and there is a $15,000 per year disbenefit associated with the project.