A highway construction company is under contract to build a new roadway through a scenic area...
A highway construction company is under contract to build a new roadway through a scenic area and two rural towns in Colorado. The road is expected to cost $10,000,000, with annual upkeep estimated at $150,000 per year. Additional income from tourist (Benefits) of $900,000 per year is estimated. The road is expected to have a useful commercial life of 15 years. The discount rate to evaluate this project is 6% per year.
Hint: Disbenefits = $0 and Annual Upkeep is equivalent to Annual M&O
Based on the data provided the Conventional B/C is equal to:
(All the alternatives presented below were calculated using compound interest factor tables including all decimal places)
- Conventional B/C = 0.523
- Conventional B/C = 1.311
- Conventional B/C = 0.763
- Conventional B/C = 1.023
Homework Answers
Conventional B/C = (AW of benefits - AW of disbenefits) / (AW of initital cost + AW of O&M - AW of salvage cost)
Conventional B/C = 900000 / (10000000 * (A/P,6%,15) + 150000)
= 900000 / (10000000 * 0.1030 + 150000)
= 900000 / 1180000
= 0.762712 ~ 0.763
Third option is correct answer
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