Question

Toll lanes on a section of the l-40 freeway are being considered in order to reduce traffic congestion and travel times. Since this is a government project, the B-C ratio method must be applied in the evaluation. Construction costs of the project are estimated to be $18,600,000, and $321,000 per year in operating and maintenance costs are anticipated. In addition, the lanes must be resurfaced every fourth year of their 20-year projected life at a cost of $1,110,000 per occurrence (no resurfacing cost in year 20). Savings in travel times and revenues generated from the tolls are anticipated to be $2,800,000 in the first year of operation, with a projected annual rate of increase of 25% per year due to the anticipated annual increase in traffic. In addtion, environmental analysis estimates that the project will result in increased noise and air pollution that will cause an additional societal health cost of $300,000 the first year and the cost is also projected to increase at 2.5% per year. Assuming zero market salvage value at the end of 20 years and a MARR of 11% per year, should the tollanes be constructed? Also, assume that the initial surfacing of the lanes is included in the initial construction costs Click the icon to view the interest and annuity table for discrete compounding when the MARR is 11% per year. The conventional benefit-cost ratio of the project with PW is(Round to two decimal places.) According to the B-C ratio method, the toll lanes should O A. be constructed O B. not be constructed 8-10221|55866-8308 09236 2 154 10000-00000-00000|0 0 0 0 0|0000 8-10221|55866-8308 09236 3 000-00000-0000 10000-00000-00000|0 0 0 0 0|0000 21-11000-0 95749-5 102-5 4 9 9 9-2 8 6 33-17 679|62910|98193-55 A 00 12 9489-7 00-4 98958-139 90592547 00178-93 0029 0-8093 817-57204-1539 12346-79 96275-67 85 86532|10 95-1 4433-322 1 100 00000-00000-00000|0 0 0 0 0|0000 01611 2 5 53-5981 56|8 0 3 58|14837|38 0 2 N1 2 3 4 56789012345678901234- 2

Answer 1

CAPITAL INVESTMENT = 18,600,000

COST FOR MAINTENANCE + RESURFACING COST = 321,000 * 20 + 1,110,000 * 4 = 10,860,000

REVENUES FROM TOLLS = 2,800,000 first year =2,800,000 * 19 =56,000,000

ANNUAL RATE OF INCREASE IN REVENUES = 2,800,000 * 2.5/100 = 70,000 * 19 = 1,330,000

TOTAL REVENUE = 56,000,000+1,330,000 = 57,330,000

HEALTH COST = 300,000 FIRST YEAR =300,000* 19 = 6,000,000

ANNUAL RATE OF INCREASE IN HEALTH COST = 300,000 * 2.5/100 = 7,500 * 19 = 1,42,500

TOTAL HEALTH COST = 6,000,000 + 1,42,500 = 6,142,500

B-C RATIO =  

B С 18. 600. 000 57. 330. 000 10.860.000×6.142.500 = 15.98

THERE IS A GOOD INVESTMENT

ANSWER A - TOLL LANES CAN BE CONSTRUCTED