Land for Water Treatment Facility #3 was initially purchased in the year 2010 for $19.3 million; however, when it was publicized, infl uential people around Allen spoke strongly against the location. We will call this location 1. Some of the plant design had already been completed when the general manager announced that this site was not the best choice anyway, and that it would be sold and a different, better site (location 2) would be purchased for $28.5 million. This was well over the budget amount of $22.0 million previously set for land acquisition. As it turns out, there was a third site (location 3) available for $35.0 million that was never seriously considered.
In his review and after much resistance from Allen Water Utilities staff, the consultant, Joel, received a copy of the estimated costs and benefi ts for the three plant location options. The revenues, savings, and sale of bulk water rights to other communities are estimated as increments from a base amount for all three locations. Using the assumption of a very long life for the WTF3 facility and the established discount rate of 3% per year, determine what Joel discovered when he did the B/C analysis. Was the general manager correct in concluding that location 2 was the best, all said and done?
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Location 1
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Location 2
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Location 3
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Land cost, $ million
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19.3
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28.5
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35
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Facility first cost, $ million
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460
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446
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446
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Benefi ts, $ per year:
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Pumping cost savings
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5
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3
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0
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Sales to area communities
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12
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10
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8
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Added revenue from Allen
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6
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6
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6
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Total benefi ts, $ per year
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23
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19
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14
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