The Wisconsin Trip Corporation is considering two locations for a water park.
The Racine location would require an investment of $3 million, and $40,000 per year to maintain, and will generate $450,000 in revenue per year.
The Lake Geneva location would cost $7 million to construct, and $60,000 per year to maintain, but would generate $750,000 in revenue per year.
Assume that either water park will be maintained and operated indefinitely. Use an interest rate of 12% per year to determine which location, if either, should be selected on the basis of:
(a) The B/C method; and
(b) The modified B/C method (with maintenance costs subtracted from the benefits, instead of added to the costs).
(c) Did both methods yield the same recommendation for the water park? If so, did that surprise you? Why or why not?