Question 1 A government is planning to implement a new traffic control and surveillance system. The maintenance cost of the system is $1,200,000 per year. It is believed that the new system can help 3,000 driver saving 8 hours per year. The average wage of the people in this country is $150 per hour. It is expected that the system can be used for 5 years, i.e., the first benefit and cost are B, and C, respectively, while the last are B, and С. (a) What is the value of time saved by the new system per year? (b) Suppose the market interest rate is 5%. Calculate the net present value of this system. Should the system be launched? (c) Suggest two reasons to explain why the market interest rate in part (b) may be too high to evaluate the project. Should the system be launched if the interest rate is adjusted according to your suggestions?
Question 1 A government is planning to implement a new traffic control and surveillance system. The maintenance cost of the system is $1,200,000 per year. It is believed that the new system can help 3,000 driver saving 8 hours per year. The average wage of the people in this country is $150 per hour. It is expected that the system can be used for 5 years, i.e., the first benefit and cost are B, and C, respectively, while the last are B, and С. (a) What is the value of time saved by the new system per year? (b) Suppose the market interest rate is 5%. Calculate the net present value of this system. Should the system be launched? (c) Suggest two reasons to explain why the market interest rate in part (b) may be too high to evaluate the project. Should the system be launched if the interest rate is adjusted according to your suggestions?
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:Question 1
A government is planning to implement a new traffic control
and surveillance system. The maintenance cost of the system
is $1,200,000 per year. It is believed that the new system can
help 3,000 driver saving 8 hours per year. The average wage
of the people in this country is $150 per hour. It is expected
that the system can be used for 5 years, i.e., the first benefit
and cost are B, and C, respectively, while the last are B, and
C,.
(a) What is the value of time saved by the new system per
year?
(b) Suppose the market interest rate is 5%. Calculate the net
present value of this system. Should the system be launched?
(c) Suggest two reasons to explain why the market interest
rate in part (b) may be too high to evaluate the project. Should
the system be launched if the interest rate is adjusted
according to your suggestions?
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