190 MULTIPLE PURPOSE RIVER DEVELOPMENT 



ing the paradox, therefore, is to impute to the project a money 

 cost that corresponds to the social cost of tax-raised funds. 



Consider then the alternatives on the assumption that the oppor- 

 tunity cost of tax-raised funds is employed. The relevant data for 

 the two plans are then shown in Table 34. We observe that while 

 the incremental benefits exceed the incremental costs, total benefits 

 under either scale of plant are less than the corresponding total 

 costs.^2 Accordingly, we must conclude that if the opportunity cost 



TABLE 33. Assumed Alternative Plans of Private Development for Howell 

 Mill Shoals, Assum.ing Interest Rate of 5.5 Per Cent 



Plan I Plan II 



($ thousand) ($ thousand) 



Investment " 73,037 104,804 



Annual costs: 



Interest and amortization '' 4,314 6,189 



Interim replacements "^ 112 146 



Federal corporation tax "• 2,477 3,555 



State and local taxes " 1,095 1,572 



Insurance 73 105 



Operation and maintenance " 174 188 



Total 8,245 11,755 



Increment in costs of II over I 3,510 



Increment in benefits of II over I 2,057 



Incremental benefit-cost ratio 0.59:1 



' Interest during construction computed at 55 per cent over a five-year period 

 on one-half of construction costs. 



^ Interest at 5.5 per cent with a fifty-year amortization schedule consistent with 

 fifty-year life of FPC license. 



' Based on Report on Preliminary Height of Dam Study, op. cit. 



"■ Assumes 45 per cent of investment funds raised by equity on which a rate 

 of return of 16.5 per cent before taxes was earned, and on which a federal 

 income tax of 45 per cent was carried. See Alabama Power Company, Annual 

 Report for the Year Ending December 31, 1955. 



* State and local taxes of 1.5 per cent of investment consistent with rationale 

 underlying similar computations in Chapter V. 



'^ In the more usual case, the comparison of incremental costs and gains takes 

 place over the range of diminishing incremental returns; hence, the appropriate 

 criterion is the comparison of incremental costs and gains. In this instance, the 



