Question

Question 2 (30%) The city of Ottawa is considering to build a new toll highway that spans from Orleans to Kanata, the project cost is estimated to be $90,000,000 and is to be paid in 3 equal payments (Payment 1 before commencement, Payment 2 at the end of the 1st year and Payment 3 at the end of 2nd year when the construction is done). The feasibility assessment of this project is 25 years after construction. This highway benefits the city a total of $5,000,000 by reducing travel times and safety improvements and would generate toll revenues of $7,000,000 per year. The O & M costs for the proposed highway is expected to be $2,100,000 per year. ** The revenues in terms of toll fares are to be treated as negative costs not benefits, i.e., there is no direct benefit to the society by charging the motorists. If the social discount rate for this project is chosen to be 5.5%. Calculate the benefit/cost ratio of this project and comment on its feasibility.

Answer 1

Anaocr Calculorte th benef:t/cast vatio Discounted valu d benefits The benecostratio distounted value d ots Prdr beneft euperkd fom Projeet Pv d the Cost d, the project The bencft tost valio = pv dcosh intlous Cash Discountd Cutflo inflowsfactorsutous Pv d Cach Cosh 9,100,000 S,000,000 1৭৪87০০ 4735000 o.247 890000 4S00000 5,000,000 2,100,000 2,00)000 793400 970000 5, 0o0,000 43000 4500000 4Q+00 00 enCost ato 198800 1890000- 14931400 $13505000 56 a100

2.39 Since, Tt is eatsthan 1, the rojet appeans to be bencfcial