A toll bridge across the Mississippi River is being considered as a replacement for the current 1-40 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 $334,000 per year in operating and maintenance costs are anticipated. In addition, the bridge must be resurfaced every fifth year of its 25-year projected life at a cost of $1,200,000 per occurrence (no resurfacing cost in year 25). 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 1.75% 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 25 years and a MARR of 11% per year, should the toll bridge be constructed? Also, assume that the initial surfacing of the bridge is included in the initial investment costs of the structure.
A toll bridge across the Mississippi River is being considered as a replacement for the current 1-40 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 $334,000 per year in operating and maintenance costs are anticipated. In addition, the bridge must be resurfaced every fifth year of its 25-year projected life at a cost of $1,200,000 per occurrence (no resurfacing cost in year 25). 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 1.75% 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 25 years and a MARR of 11% per year, should the toll bridge be constructed? Also, assume that the initial surfacing of the bridge is included in the initial investment costs of the structure.
Essentials Of Investments
11th Edition
ISBN:9781260013924
Author:Bodie, Zvi, Kane, Alex, MARCUS, Alan J.
Publisher:Bodie, Zvi, Kane, Alex, MARCUS, Alan J.
Chapter1: Investments: Background And Issues
Section: Chapter Questions
Problem 1PS
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Transcribed Image Text:A toll bridge across the Mississippi River is being considered as a replacement for the current
1-40 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 $334,000 per year in
operating and maintenance costs are anticipated. In addition, the bridge must be resurfaced
every fifth year of its 25-year projected life at a cost of $1,200,000 per occurrence (no
resurfacing cost in year 25). 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 1.75% 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 25 years and a MARR of 11% per year, should the toll bridge
be constructed? Also, assume that the initial surfacing of the bridge is included in the initial
investment costs of the structure.
Click the icon to view the interest and annuity table for discrete compounding when the
The benefit-cost ratio of the project with PW is
Show Trar
N
1
2
3
4
5
6
7
8
9
10
11
12
13
14
ed Tex
Single Payment
Compound
Amount
Factor
To Find F
Given P
FIP
1.1100
1.2321
1.3676
1.5181
1.6851
1.8704
2.0762
2.3045
2.5580
2.8394
3.1518
3.4985
3.8833
4.3104
Discrete Compounding; /= 11%
Presen
Worth Factor
To Find P
Given F
PIF
0.9009
0.8116
0.7312
0.6587
0.5935
0.5346
0.4817
0.4339
0.3909
0.3522
0.3173
0.2858
0.2575
0.2320
(Round to two decimal places.)
Compound
Amount
Factor
To Find F
Given A
FIA
1.0000
2.1100
3.3421
4.7097
6.2278
7.9129
9.7833
11.8594
14.1640
16.7220
19.5614
22.7132
26.2116
30.0949
Uniform Series
Present
Worth Factor
To Find P
Given A
PIA
0.9009
1.7125
2.4437
3.1024
3.6959
4.2305
4.7122
5.1461
5.5370
5.8892
6.2065
6.4924
6.7499
6.9819
Sinking
Fund
Factor
To Find A
Given F
AIF
1.0000
0.4739
0.2992
0.2123
0.1606
0.1264
0.1022
0.0843
0.0706
0.0598
0.0511
0.0440
0.0382
0.0332
Capital
Recovery
Factor
To Find A
Given P
A/P
1.1100
0.5839
0.4092
0.3223
0.2706
0.2364
0.2122
0.1943
0.1806
0.1698
0.1611
0.1540
0.1482
0.1432
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