4. 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?
4. 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?
Chapter1: Making Economics Decisions
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Problem 1QTC
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Transcribed Image Text:4.
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?
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