Fundamentals of Engineering Economics 3rd Edition by Chan Park

Exercise 3

A city government is considering two types of town-dump sanitary systems. Design A requires an initial outlay of $400,000 with annual operating and maintenance costs of $50,000 for the next 15 years; design B calls for an investment of $300,000 with annual operating and maintenance costs of $80,000 per year for the next 15 years. Fee collections from the residents would be $85,000 per year. The interest rate is 8%, and no salvage value is associated with either system.
(a) By the benefit-cost ratio (BC( i )), which system should be selected?
(b) If a new design (design C ), which requires an initial outlay of $350,000 and annual operating and maintenance costs of $65,000, is proposed, would your answer to (a) change?