Please show working for credit l A city is looking at building a bridge over a s
ID: 2734311 • Letter: P
Question
Please show working for credit
l A city is looking at building a bridge over a set of railroad tracks. It's estimated cost is $200K The benefits to the city's population through reduced congestion and less wear and tear on their automobiles is estimated at 20K/year. Businesses in the vicinity of the new bridge are estimated to lose S50K in profits when construction starts (yr 0) due to reduced customer access. Once the bridge is finished, profits are expected to return to previous levels. The bridge is expected to have a So year life and cost $50K to tear down then (negative salvage cost). The city uses the conventional BMC ratio and a 5 MARR to evaluate its projects. Should the city construct the bridge?Explanation / Answer
Answer:
The city should contruct the bridge because:
Initial Outflow in $ "000" Construction cost 200 Add: Loss on business 50 Total 250 Add: PV of salvage value 4.36 (=pv(5%,50,0,50) C = Total Cost 254.36 B = Benefit = 365.12 (=PV(5%,50,-20,,0)) So the B/C= 1.4354 ($365.12/$254.36)