The city council of a fast growing city in the west of Canada is planning to construct a new tunnel to help improve the traffic flow in the city. Construction is to start in 2020 and is expected to last for four years at a cost of $16 million per year. After construction is completed, the regular cost of operation and maintenance is expected at $1 million for the first year, increasing by $80,000 per year thereafter. To help the city recover the construction cost, the tunnel will operate for the first 25 years as a toll way (till end of 2048). Expected return from toll fees is estimated at $8 million per year. Consider the present to be the end of 2018/beginning of 2019, the service life of the project to be till end of year 2058, and the interest rate to be 6%. a) Draw a cash flow diagram for this project. What is the Present Worth of the project? b) c) What is the Annual Worth of the project from 2018 till 2058? (Hint: make use of the PW calculated in part b)). d) Is it a good investment for the city to make?

The city council of a fast growing city in the west of Canada is planning to construct a new tunnel to help improve the traffic flow in the city. Construction is to start in 2020 and is expected to last for four years at a cost of $16 million per year. After construction is completed, the regular cost of operation and maintenance is expected at $1 million for the first year, increasing by $80,000 per year thereafter. To help the city recover the construction cost, the tunnel will operate for the first 25 years as a toll way (till end of 2048). Expected return from toll fees is estimated at $8 million per year. Consider the present to be the end of 2018/beginning of 2019, the service life of the project to be till end of year 2058, and the interest rate to be 6%. a) Draw a cash flow diagram for this project. What is the Present Worth of the project? b) c) What is the Annual Worth of the project from 2018 till 2058? (Hint: make use of the PW calculated in part b)). d) Is it a good investment for the city to make?

ENGR.ECONOMIC ANALYSIS

14th Edition

ISBN:9780190931919

Author:NEWNAN

Publisher:NEWNAN

Chapter1: Making Economics Decisions

Section: Chapter Questions

Problem 1QTC

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