Question
In: Economics
A city is considering building a bridge over a set of railroad tracks. Its estimated cost...
A city is considering building a bridge over a set of railroad tracks. Its estimated cost is $200,000. The benefits to the city’s population through reduced congestion and less wear and tear on their automobiles is estimated at 40,000/year. There will be an annual loss of $15,000 to decreased land values to businesses in the area. Yearly O&M is estimated at $5,000 per year. The bridge is expected to have a 40-year life and cost $50,000 to tear down then (negative salvage cost). The city uses the conventional B/C ratio and a 8 % MARR to evaluate its projects. Should the city construct the bridge?
Solutions
Expert Solution
B/C of project = (AW of benefits - AW of disbenefits)/(AW of initial costs + AW of O&M - AW of salvage)
B/C = (40000-15000)/(200000*(A/P,8%,40) + 5000 + 50000*(A/F,8%,40))
= (40000-15000)/(200000*0.083860 + 5000 + 50000*0.003860)
= 1.14
As B/C is more than 1, this project should be selected
Rahul Sunny answered 2 years agoRelated Solutions
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