Simulation : Cost Benefit Analysis
The city of Harris Harbor has recently decided to build a waste incinerator for non-industrial, non-hazardous solid waste (e.g. typical household garbage). They have done this for two reasons. First, the city has no landfill. The city currently ships all of its garbage to a rural county in Northern Michigan. Recently the fees for shipping this garbage increased by over 700% over three years and the city can find no cheaper area to ship its waste to. Second, the city hopes to use the incinerator as a revenue generator. It is hoped that localities throughout the state will start to ship their garbage to Harris Harbor for
The excel workbook for Simulation 4 is located on blackboard. The workbook contains costs and benefits for three different project proposals (projects A, B, and C) to build the new waste incinerator in Harris Harbor.
1. Conduct a cost-benefit analysis (with net present value calculations) for each of the three projects. Assume a constant 5% discount rate throughout the lifetime of each project. Make sure to show the calculations behind your answers. I will be grading you based on the calculations you turn in.
2. Based on the cost-benefit analysis, tell the city which project proposal (project A, B, or C) to choose. Why should that project be chosen over the other projects?
3. Do you have any concerns about the cost and benefit data presented in project proposals A, B, or C? If so, identify these concerns and state what the city should do to address them.