Question 1

To select which design is best, the total cost for each design will be
calculated and compared with one another:
Cost of Design X = Cost of overflow damages + cost of investment
General formula for each design:
Annual average cost of overflow given a weight (probability) for each
scenario + annual cost given a present investment cost
Sample calculation:
Design A:
Capacity: 1 unit
Probabilities of rainfall greater than 1 unit = 0.10, 0.04, 0.01
Total cost = 600,000 (0.10 + 0.04 +0.01) + 500,000(A/P, 10%, 40 years)
Here, the interest rate is 10% (assuming annual) and the project duration is
40 years.
So for annual worth calculations: (A/P, 10%, 40 years):

i(1+i)n
( 1+i )n1

0.10(1+ 0.10) 40
=0.10226
(1+0.10)401

Design

Overflow
Damage cost ($)

A
B
C

90,000
30,000
6,000

Annual
investment
cost ($)
51,130
63,913
92,034

Total Cost
($)
141,130
93,913
98,034

Based on the calculated total costs of each design, Design B should be

selected as it has the least cost.