The recreation department for Southampton is trying to decide how to develop a piece of land. The y have narrowed the choices down to tennis courts or a swimming pool. The swimming pool will cost £2.5 million to construct, and will cost £300 000 per year to operate, but will bring benefits of £475 000 per year over its 25-year expected life.
Tennis courts would cost £200 000 to build, cost £20 000 per year to operate, and bring £60 000 per year in benefits over their eight-year life. Both projects are assumed to have a salvage value of zero. The appropriate ALARR is 5%.
(a) Which project is preferable? Use a BCR and an annual worth approach.
(b) Which project is preferable? Use a BCRAI and an annual worth approach.