In order to safeguard the public health, environment, public beaches, water qual

Question

In order to safeguard the public health, environment, public beaches, water quality, and economy of south San Diego County, California, and Tijuana, Mexico, federal agencies in the United States and Mexico developed four alternatives for treating wastewater prior to discharge into the ocean. The project will minimize untreated wastewater flows that have caused chronic and substantial pollution in the Tijuana River valley, Tijuana River National Estaurine Research Reserve, coastal areas used for agriculture and public recreation, and areas designated as critical habitat for federal and state-listed endangered species. If the costs and benefits are as shown, which alternative should be selected on the basis of a B/C analysis at 6 % per year and a 40-year project period? All monetary amounts are in $ million units

Explanation / Answer

B/C Ratio (BCR) = Present value (PV) of benefits / (Capital cost + PV of M&O cost)

(a) Pond system

BCR = [11.1 x PVIFA(6%, 40)] / [58 + 5.5 x PVIFA(6%, 40)] = [11.1 x 15.0463] / [58 + 5.5 x 15.0463]

= 167 / (58 + 83) = 167 / 141 = 1.18

(b) Expand plant

BCR = [12 x PVIFA(6%, 40)] / [76 + 5.3 x PVIFA(6%, 40)] = [12 x 15.0463] / [76 + 5.3 x 15.0463]

= 181 / (76 + 80) = 181 / 156 = 1.16

(c) Advanced primary

BCR = [2.7 x PVIFA(6%, 40)] / [2 + 2.1 x PVIFA(6%, 40)] = [2.7 x 15.0463] / [2 + 2.1 x 15.0463]

= 41 / (2 + 32) = 41 / 34 = 1.21

(d) Partial secondary

BCR = [8.3 x PVIFA(6%, 40)] / [48 + 4.4 x PVIFA(6%, 40)] = [8.3 x 15.0463] / [48 + 4.4 x 15.0463]

= 125 / (48 + 66) = 125 / 114 = 1.09

Since Advanced Primary has highest BCR, this option should be chosen.

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