Engineering Economic Analysis

16-23 A 50-meter tunnel must be constructed as part of a
new aqueduct system for a city. Two alternatives are
being considered. One is to build a full-capacity tun-
nel now for $500,000. The other alternative is to build
a half-capacity tunnel now for $300,000 ana then to
build a second parallel half-capacity tunnel 20 years
hence for $400,000. The cost to repair the tunnellin-
ing every 10 years is estimated to be $20,000 for
the full-capacity tunnel and $16,000 for each half-
capacity tunnel.
Determine whether the full-capacity tunnel or
the half-capacity tunnel should be constructed now.
Solve the problem by the conventional benefit-cost
ratio analysis, using a 5% interest rate and a 50-year
analysis period. There will be no tunnel lining repair
at the end of the 50 years.

16-24 The Fishery and Wildlife Agency of Ireland is con-

sidering four mutually exclusive design alternatives

(Table P16-24) for a major salmon hatchery.. This

agency of the Irish government uses the following

B/C ratio for decision making:

EW(Net benefits)

BICratio=

EW(Capital recovery cost) + EW(O&M cost)

Using an interest rate of 8% and a project life of

30 years, recommend which of the designs is best.

16-25 Six mutually exclusive investments have been identi-

fied for evaluation by means of the benefit-cost ratio

method. Assume a MARR of 10%, an equal project

life of 25 years for all alternatives, and the data in

Table P16-25.

TABLEP16-24 Data

Irish Fishery Design Alternatives

A B C D

First cost $9,500,000 $12,500,000 $14,000,000 $15,750,000

Annual benefits 2,200,000 1,500,000 1,000,000 2,500,000

Annual O&M costs 550,000 175,000 325,000 145,000

Annual disbenefits 350,000 150,000 75,000 700,000

Salvage value 1,000,000 6,000,000 3,500,000 7,500,000