A government is planning a hydroelectric project for a river basin. Besides the production of
electric power, this project will provide flood control, irrigation, and recreation benefits. The
estimated benefits and costs expected from the three alternatives under consideration are
listed in the following table:
Initial Cost
Annual equivalent Benefit & Cost
A
B
C
(Rs)
(Rs)
(Rs)
25,00,00,000
35,00,00,000
50,00,00,000
a). Operating & maintenance cost 30,00,000
35,00,000
45,00,000
b). Power sales/year
2,00,00,000
2,20,00,000
2,80,00,000
c). Flood control savings
35,00,000
45,00,000
60,00,000
d). Irrigation benefits
45,00,000
55,00,000
70,00,000
e). Recreation benefits
20,00,000
30,00,000
45,00,000
If the interest rate is 10% and the life of the projects is estimated to be 40 years, by
comparing the BC ratios, determine which project should be selected.