A state is planning to construct a stretch of highway extending to 60 Kilometer. The state signed a contract based on the BOT option (Build, Operate, and Transfer) with a construction company. The construction company will finish the project in two years (30 kilometers per year), after which it will operate the highway for 25 years. The company generates revenues by collecting a flat fees from the cars using the highway. The following information is available: Cost/Kilometer: 1,000,000 S Number of cars using the highway: 500,000 car for the first year of usage, then increase by 5% a year. Annual operation cost: 100,000 $ for the first year of usage, then increase by
A state is planning to construct a stretch of highway extending to 60 Kilometer. The state signed a contract based on the BOT option (Build, Operate, and Transfer) with a construction company. The construction company will finish the project in two years (30 kilometers per year), after which it will operate the highway for 25 years. The company generates revenues by collecting a flat fees from the cars using the highway. The following information is available: Cost/Kilometer: 1,000,000 S Number of cars using the highway: 500,000 car for the first year of usage, then increase by 5% a year. Annual operation cost: 100,000 $ for the first year of usage, then increase by
Chapter1: Making Economics Decisions
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Transcribed Image Text:A state is planning to construct a stretch of highway extending to 60 Kilometer.
The state signed a contract based on the BOT option (Build, Operate, and Transfer)
with a construction company. The construction company will finish the project in
two years (30 kilometers per year), after which it will operate the highway for
25 years. The company generates revenues by collecting a flat fees from the cars
using the highway. The following information is available:
Cost/Kilometer: 1,000,000 S
Number of cars using the highway: 500,000 car for the first year of usage,
then increase by 5% a year.
- Annual operation cost: 100,000 $ for the first year of usage, then increase by
10,000 $ every year.
The company's MARR is 8% per year.
Calculate the value of the fee charged/car so that the Net Present worth of the
project is 25,000,000 S.
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