What is the capitalized worth of the bridge

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Reference no: EM131506997

Question: Refer back to Problem. Suppose that the toll bridge can be redesigned such that it will have a (virtually) infinite life. MARR remains at 10% per year. Revised costs and revenues (benefits) are given as follows:

Capital investment: $22,500,000

Annual operating and maintenance costs: $250,000

Resurface cost every seventh year: $1,000,000

Structural repair cost, every 20th year: $1,750,000

Revenues (treated as constant-no rate of increase): $3,000,000

a. What is the capitalized worth of the bridge?

b. Determine the B-C ratio of the bridge over an infinite time horizon.

c. Should the initial design (Problem 10-7) or the new design be selected?

Problem: A toll bridge across the Mississippi River is being considered as a replacement for the current I-40 bridge linking Tennessee to Arkansas. Because this bridge, if approved, will become a part of the U.S. Interstate Highway system, the B-C ratio method must be applied in the evaluation. Investment costs of the structure are estimated to be $17,500,000, and $325,000 per year in operating and maintenance costs are anticipated. In addition, the bridge must be resurfaced every fifth year of its 30-year projected life at a cost of $1,250,000 per occurrence (no resurfacing cost in year 30). Revenues generated from the toll are anticipated to be $2,500,000 in its first year of operation, with a projected annual rate of increase of 2.25% per year due to the anticipated annual increase in traffic across the bridge. Assuming zero market (salvage) value for the bridge at the end of 30 years and a MARR of 10% per year, should the toll bridge be constructed?

Reference no: EM131506997

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