dge is to be constructed now as part of a new road. Engineers have determined that current traffic volume on the new road will justify a two-lane road and a bridge at the ent time. Because of the uncertainty regarding future traffic, the time at which the additional two lanes will be required is currently being studied. Two alternatives are being idered. Alternative 1- One-stage construction: Build a four lane bridge right now for $397,000. Alternative 2 - Two-stage construction: Start with a two-lane bridge now for $190,000 and widen to four lanes later when traffic justifies. The future cost of widening the bridge to four-lanes at that time will be $190,000 plus an extra $23,000 for every year that widening is delayed. For example, if future widening is done at the end of year 7, the cost of widening at that time will be equal to $190,000+ 7x($23,000) = $351,000. The following estimates have been made of when widening to a four-lane bridge will be required: Pessimistic estimate Most likely estimate Optimistic estimate End of year 3 End of year 7 End of year 9 view of these estimates, which alternative would you recommend? The MARR used by the highway department is 8% per year Click the icon to view the interest and annuity table for discrete compounding when the MARR is 8% per year. II Calculate the PW of costs for the different scenarios of Alternative 2 PW pessimistic (8%) = $ thousand (Round to one decimal place.) PW most likely (8%) = $ thousand (Round to one decimal place.) PW optimistic (8%) = $ thousand (Round to one decimal place.) b) Calculate the expected PW costs of Alternative 2 using the "three-point estimation" technique A Expected PW = $ thousand (Round to one decimal place.) c) Based on these estimates, which alternative is more economical?
dge is to be constructed now as part of a new road. Engineers have determined that current traffic volume on the new road will justify a two-lane road and a bridge at the ent time. Because of the uncertainty regarding future traffic, the time at which the additional two lanes will be required is currently being studied. Two alternatives are being idered. Alternative 1- One-stage construction: Build a four lane bridge right now for $397,000. Alternative 2 - Two-stage construction: Start with a two-lane bridge now for $190,000 and widen to four lanes later when traffic justifies. The future cost of widening the bridge to four-lanes at that time will be $190,000 plus an extra $23,000 for every year that widening is delayed. For example, if future widening is done at the end of year 7, the cost of widening at that time will be equal to $190,000+ 7x($23,000) = $351,000. The following estimates have been made of when widening to a four-lane bridge will be required: Pessimistic estimate Most likely estimate Optimistic estimate End of year 3 End of year 7 End of year 9 view of these estimates, which alternative would you recommend? The MARR used by the highway department is 8% per year Click the icon to view the interest and annuity table for discrete compounding when the MARR is 8% per year. II Calculate the PW of costs for the different scenarios of Alternative 2 PW pessimistic (8%) = $ thousand (Round to one decimal place.) PW most likely (8%) = $ thousand (Round to one decimal place.) PW optimistic (8%) = $ thousand (Round to one decimal place.) b) Calculate the expected PW costs of Alternative 2 using the "three-point estimation" technique A Expected PW = $ thousand (Round to one decimal place.) c) Based on these estimates, which alternative is more economical?
Chapter1: Making Economics Decisions
Section: Chapter Questions
Problem 1QTC
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Transcribed Image Text:A bridge is to be constructed now as part of a new road. Engineers have determined that current traffic volume on the new road will justify a two-lane road and a bridge at the
present time. Because of the uncertainty regarding future traffic, the time at which the additional two lanes will be required is currently being studied. Two alternatives are being
considered.
Alternative 1 - One-stage construction: Build a four lane bridge right now for $397,000.
Alternative 2 - Two-stage construction: Start with a two-lane bridge now for $190,000 and widen to four lanes later when traffic justifies. The future cost of widening the bridge
to four-lanes at that time will be $190,000 plus an extra $23,000 for every year that widening is delayed. For example, if future widening is done at the end of year 7, the cost of
widening at that time will be equal to $190,000 + 7x($23,000) = $351,000. The following estimates have been made of when widening to a four-lane bridge will be required:
Pessimistic estimate
Most likely estimate
Optimistic estimate
End of year 3
End of year 7
End of year 9
In view of these estimates, which alternative would you recommend? The MARR used by the highway department is 8% per year
Click the icon to view the interest and annuity table for discrete compounding when the MARR is 8% per year.
(a) Calculate the PW of costs for the different scenarios of Alternative 2
pessimistic (8%) = $
thousand (Round to one decimal place.)
PW most likely (8%) = $|
PW optimistic (8%) = $
thousand (Round to one decimal place.)
(b) Calculate the expected PW costs of Alternative 2 using the "three-point estimation" technique
Expected PW = $
thousand (Round to one decimal place.)
(c) Based on these estimates, which alternative is more economical?
OA. Alternative 2
PW,
thousand (Round to one decimal place.)
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