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. InterstateHighway system, the B-C ratio method must be applied in the evaluation. Investment costs of the structure are estimated to be $19,000,000, and $332,000 per year in operating and maintenance costs areanticipated. In addition, the bridge must be resurfaced every fifth year of its 30-year projected life at a cost of $1,300,000 per occurrence (no resurfacing cost in year 30). Revenues generated from the toll areanticipated to be $2,400,000 in its first year of operation, with a projected annual rate of increase of 2% 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 30 years and a MARR of 12% 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 thestructure.Click the icon to view the interest and annuity table for discrete compounding when the MARR is 12% per year.The benefit-cost ratio of the project with PW is(Round to two decimal places.)(...)

B-C ratio is the one of the method of capital budgeting for the long term constructuction projects.…

Answered: A toll bridge across the Mississippi…

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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The Cebu City plans to increase the capacity of her existing water transmission lines. Two plans are under consideration. Plan A requires the construction of a parallel pipeline, the flow being maintained by gravity. The initial cost is P197,342,811 and the life is 40 years, with an annual operating cost of P8,450,154 for the 1st 20 years and P13,297,046 for the next 20 years. Plan B requires the construction of a booster pumping station costing P100M with the life of 40 years. The pumping equipment cost an additional amount of P25M, it has a life of 20 years and a salvage value of P2M. The annual operating cost is P5M. Using the Present Value (PV) Method and an interest of 21% cpd. annually, what is the PV of Plan A?
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