A city needs a new pedestrian bridge over a local stream. The city uses an interest rate of 5%, and the project life is 30 years. The following data (in millions of dollars) summarizes the bids that were received. Bid A Bid B Construction materials costs $4.20 $6.20 Construction labor costs 0.60 0.70 Construction overhead costs 0.35 0.03 Initial administrative and legal costs 0.60 Annual operating costs Annual revenue from operation Other annual benefits to the city 0.01 0.05 0.075 Unknown 0.40 0.25 0.22 What would the annual revenue of Bid A have to be for the two projects to be equivalent? Choose the closest value. (a) 0.10 (b) 0.20 (c) 0.30 (d) 0.40
A city needs a new pedestrian bridge over a local stream. The city uses an interest rate of 5%, and the project life is 30 years. The following data (in millions of dollars) summarizes the bids that were received. Bid A Bid B Construction materials costs $4.20 $6.20 Construction labor costs 0.60 0.70 Construction overhead costs 0.35 0.03 Initial administrative and legal costs 0.60 Annual operating costs Annual revenue from operation Other annual benefits to the city 0.01 0.05 0.075 Unknown 0.40 0.25 0.22 What would the annual revenue of Bid A have to be for the two projects to be equivalent? Choose the closest value. (a) 0.10 (b) 0.20 (c) 0.30 (d) 0.40
Chapter1: Financial Statements And Business Decisions
Section: Chapter Questions
Problem 1Q
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Transcribed Image Text:A city needs a new pedestrian bridge over a local stream. The city uses an
interest rate of 5%, and the project life is 30 years. The following data (in
millions of dollars) summarizes the bids that were received.
Bid A
$4.20
|Bid B
Construction materials costs
$6.20
Construction labor costs
0.60
0.70
Construction overhead costs
0.35
0.03
Initial administrative and legal costs|0.60
0.01
D-
94 Annual operating costs
Annual revenue from operation
0.075
Unknown 0.40
0.25
0.05
Other annual benefits to the city
0.22
What would the annual revenue of Bid A have to be for the two projects
to be equivalent? Choose the closest value.
(a) 0.10
(b) 0.20
(c) 0.30
(d) 0.40
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