The president of City X plans to build a final waste disposal facility. Design A has an initial investment cost of $400,000, with annual maintenance costs of $50,000 over the 15-year operating life. Design B has an initial investment cost of $300,000, with annual maintenance costs of $80,000 per year over the 15-year operating life. The money paid by residents using this landfill facility is $85,000 per year. If the bank compound interest rate is 8% per year, and there is no salvage value for the two design options, then specify:
1. Which system should be chosen using the incremental B/C ratio?
2. If additional new designs are proposed, design C which requires an initial investment cost of $350,000 and annual maintenance costs of $65,000 over the course of 15 years of operating life. With the C design choice, will you change your choice in point a above?
Hint: using the incremental B/C ratio
