The U.S. Army Corps of Engineers is considering the feasibility of constructing
ID: 1248748 • Letter: T
Question
The U.S. Army Corps of Engineers is considering the feasibility of constructing a small flood control dam in an existing arroyo. The initial cost of the project will be $2.2 million, with inspection and upkeep costs of $10,000 per year. In addition, minor reconstruction will be required every 15 years at a cost of $65,000. If flood damage will be reduced from from the present cost of $90,000 per year to $10,000 annually, use the benefit/cost method to determine if the dam should be constructed. Assume that the dam will be permanent and the interest rate is 12% per year.Explanation / Answer
I'm not sure what the interest rate is supposed to be on, but each year's average cost will be $14,333, which can be used to create the equation $80000x=$14333x+$2200000 where x is in years and the number of years for the dam to create a benefit is 33.5. I do not know if this is considered to make the dam feasible, but if it is to exist indefinitely, it seems it will be.