A secondary road in a developing country, 30 km long is to be improved by surface treating the gravel surface without any change in length. The cost of improvement is estimated at $150,000 per km. Present annual transport costs for all traffic on the existing road (vehicle operating cost plus maintenance cost etc.) is estimated at $200,000 per km. After improvement this is expected to reduce to $170,000 per km per annum. Reconstruction takes place in two years with equal expenditure in each year. Assume that in the second year of construction, transport cost on the improved road is equivalent to present costs on half the length and new transport cost on the other half. Would you undertake the project? (MARR = 8% and the project life is 20 years after reconstruction.) Resealing would be required 10 years after reconstruction at a cost of $55,000 per km. Use the Net Present Value method.
A secondary road in a developing country, 30 km long is to be improved by surface treating the gravel surface without any change in length. The cost of improvement is estimated at $150,000 per km. Present annual transport costs for all traffic on the existing road (vehicle operating cost plus maintenance cost etc.) is estimated at $200,000 per km. After improvement this is expected to reduce to $170,000 per km per annum. Reconstruction takes place in two years with equal expenditure in each year. Assume that in the second year of construction, transport cost on the improved road is equivalent to present costs on half the length and new transport cost on the other half. Would you undertake the project? (MARR = 8% and the project life is 20 years after reconstruction.) Resealing would be required 10 years after reconstruction at a cost of $55,000 per km. Use the Net Present Value method.
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