A growing city of 60,000 has an intersection near the south end of the main business district. The north-south street has no traffic control at that intersection, and the east-west intersecting street has only stop signs.There have been a few accidents in recent years and it has been estimated that a traffic light can provide benefits of $55,000 per year in reduced property loss and disabling injuries, increasing by $2,500 per year.The disbenefits of the traffic light include cost of fuel and time delays, amounting to an estimated $24,000 per year, increasing by $2,000 per year. The installation cost of the traffic light is estimated to be $120,000 with maintenance and electricity running $6,000 in the first year and increasing by $300 per year over a time horizon of 10 years. It is anticipated that the intersection will need to be redesigned at that time and the traffic light removed and sold to a nearby small community for a net salvage value of $4,000. The discount rate is 7%. Is the traffic light justified?
A growing city of 60,000 has an intersection near the south end of the main business district. The north-south street has no traffic control at that intersection, and the east-west intersecting street has only stop signs.There have been a few accidents in recent years and it has been estimated that a traffic light can provide benefits of $55,000 per year in reduced property loss and disabling injuries, increasing by $2,500 per year.The disbenefits of the traffic light include cost of fuel and time delays, amounting to an estimated $24,000 per year, increasing by $2,000 per year. The installation cost of the traffic light is estimated to be $120,000 with maintenance and electricity running $6,000 in the first year and increasing by $300 per year over a time horizon of 10 years. It is anticipated that the intersection will need to be redesigned at that time and the traffic light removed and sold to a nearby small community for a net salvage value of $4,000. The discount rate is 7%. Is the traffic light justified?
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