Question

In order to improve evacuation routes out of New Orleans in the event of another major disaster such as Hurricane Katrina, the Louisiana Department of Transportation (L-DoT) is planning to construct an additional bridge across the Mississippi River. The department uses an interest rate of 8% and plans a 50-year life for either bridge. Which design has the better present worth? All costs in $M Land acquisition Annual O & M Annual increase Major Maintenance (Year 25 Salvage Cost nitial Construction Bridge M|Bridge L $220 $195 0.04 185 30 $585 0.03 210 27 S470

Answer 1

We will discount the cash flow by 8%. Annual O&M cost is going to be increased and that will be up to 50 years.
While discounting this needs to be taken into account.

Bridge M 220 PV@8% 220 25.4456 Bridge L 195 PV@8% 195 37.4345 Land Cost Annual O&M Annual increase Major maintainnace (25th Y) Salvage Initial Cost 0.04 185 o.03 210 27.01331241 -0.63963686 585 o.66376 -0.5756732 470 585 470 NPV 856.8193236 32.52255 10

The calculation indicates that Bridge L has a lower cost.