Iternatives are being considered. Alternative 1 - One-stage construction: Build a four lane bridge right now for $377,000. Alternative 2 - Two-stage construction: Start with a two-lane bridge now for $180,000 and widen to four lanes later when traffic justifies. The future cost of widening the bridge to four-lanes at that time will be $180,000 plus an extra $25,000 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 $180,000 + 7x($25,000) = $355,000. The following estimates have been made of when widening to a four-lane bridge will be required: End of year 5 End of year 7 End of year 9 Pessimistic estimate Most likely estimate Optimistic estimate a) Calculate the PW of costs for the different scenarios of Alternative 2 PWpessimistic (9%)= $ thousand (Round to one decimal place.) PWmost likely (9%) = $| thousand (Round to one decimal place.) PWoptimistic tic(9%) = $| 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?
Iternatives are being considered. Alternative 1 - One-stage construction: Build a four lane bridge right now for $377,000. Alternative 2 - Two-stage construction: Start with a two-lane bridge now for $180,000 and widen to four lanes later when traffic justifies. The future cost of widening the bridge to four-lanes at that time will be $180,000 plus an extra $25,000 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 $180,000 + 7x($25,000) = $355,000. The following estimates have been made of when widening to a four-lane bridge will be required: End of year 5 End of year 7 End of year 9 Pessimistic estimate Most likely estimate Optimistic estimate a) Calculate the PW of costs for the different scenarios of Alternative 2 PWpessimistic (9%)= $ thousand (Round to one decimal place.) PWmost likely (9%) = $| thousand (Round to one decimal place.) PWoptimistic tic(9%) = $| 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?
Chapter1: Making Economics Decisions
Section: Chapter Questions
Problem 1QTC
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4
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 $377,000.
Alternative 2 - Two-stage construction: Start with a two-lane bridge now for $180,000 and widen to four lanes later when traffic justifies. The future cost of widening
the bridge to four-lanes at that time will be $180,000 plus an extra $25,000 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 $180,000 + 7x($25,000) = $355,000. The following estimates have been made of when widening to
a four-lane bridge will be required:
Pessimistic estimate
End of year 5
End of year 7
Most likely estimate
Optimistic estimate
End of year 9
(a) Calculate the PW of costs for the different scenarios of Alternative 2
PWpessimistic (9%)= $
thousand (Round to one decimal place.)
PWmost likely (9%) = $
thousand (Round to one decimal place.)
PWoptimistic (9%) = $
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?
O A. Alternative 1
O B. Alternative 2
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