A highway construction company is under contract to build a new roadway through a scenic area and two rural towns in Colorado. The road is expected to cost $15,000,000, with annual upkeep estimated at $150,000 per year. Additional income from tourists (Benefits) of $1,400,000 per year is estimated. The road is expected to have a useful commercial life of 25 years. The discount rate to evaluate this project is 4% per year.
Hint: Disbenefits = $0 and Annual Upkeep is equivalent to Annual M&O. Based on the Conventional B/C calculated before, the decision is:.
a. Conventional B/C is less than 1. Project is justified, so build the road.
b. Conventional B/C is more than 1. Project is not justified, so don't build the road.
c. Conventional B/C is less than 1. Project is not justified, so don't build the road.
d. Conventional B/C is more than 1. Project is justified so build the road.
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