Engineering Economy 7th Edition by Leland Blank ,Anthony Tarquin

Exercise 6

Although the lower Rio Grande is regulated by the Elephant Butte Dam and the Caballo Reservoir, serious flooding has occurred in El Paso and other cities located along the river. This has required homeowners living in valley areas near the river to purchase flood insurance costing between $145 and $2766 per year. To alleviate the possibility of flooding, the International Boundary and Water Commission undertook a project costing $220 million to raise the levees along flood-prone portions of the river. As a result, 13,000 properties were freed of the federal mandate to purchase flood insurance. In addition, historical records indicate that damage to infrastructure will be avoided, which amounts to an average benefit of $8,200,000 per year. If the average cost of flood insurance is $460 per household per year, calculate the benefit-to-cost ratio of the levee-raising project. Use an interest rate of 6% per year and a 30-year study period.