Which of the two alternatives should be selected.

Question

Want to see more full solutions like this?

Answer 1

Question

Chapter 5, Problem 33P

To determine

Which of the two alternatives should be selected.

Expert Solution & Answer

Answer to Problem 33P

The Option to be implemented is Cantilever bridge, since it results in a lower cash outflow for a period of 50 years.

Explanation of Solution

Given information: (all costs in $Million)

Installation Cost:

Suspension Bridge $585

Cantilever Bridge $470

Land acquisition Cost:

Suspension Bridge $120

Cantilever Bridge $95

Annual Operation and Maintenance costs:

Suspension Bridge $2

Cantilever Bridge $3

Annual Increase in Operation and Maintenance costs:

Suspension Bridge 4%

Cantilever Bridge 3%

Salvage Value in year 50:

Suspension Bridge $30

Cantilever Bridge $27

Rate of Interest for calculation: 8%.

Based on the above information, the following tables outlines the net present value calculation of the two options.

Suspension Bridge:

Year	Particulars (Figures in Million)	Cash flow	Present value Factor @8%	Present value
0	Installation Cost	$585.00	1.0000	$585.00
0	Land Cost	$120.00	1.0000	$120.00
1	Operating Costs	$2.00	0.9259	$1.85
2	Operating Costs	$2.08	0.8573	$1.78
3	Operating Costs	$2.16	0.7938	$1.71
4	Operating Costs	$2.25	0.7350	$1.65
5	Operating Costs	$2.34	0.6806	$1.59
6	Operating Costs	$2.43	0.6302	$1.53
7	Operating Costs	$2.53	0.5835	$1.48
8	Operating Costs	$2.63	0.5403	$1.42
9	Operating Costs	$2.74	0.5002	$1.37
10	Operating Costs	$2.85	0.4632	$1.32
11	Operating Costs	$2.96	0.4289	$1.27
12	Operating Costs	$3.08	0.3971	$1.22
13	Operating Costs	$3.20	0.3677	$1.18
14	Operating Costs	$3.33	0.3405	$1.13
15	Operating Costs	$3.46	0.3152	$1.09
16	Operating Costs	$3.60	0.2919	$1.05
17	Operating Costs	$3.75	0.2703	$1.01
18	Operating Costs	$3.90	0.2502	$0.98
19	Operating Costs	$4.05	0.2317	$0.94
20	Operating Costs	$4.21	0.2145	$0.90
21	Operating Costs	$4.38	0.1987	$0.87
22	Operating Costs	$4.56	0.1839	$0.84
23	Operating Costs	$4.74	0.1703	$0.81
24	Operating Costs	$4.93	0.1577	$0.78
25	Operating Costs	$5.13	0.1460	$0.75
25	Maintenance Cost	$185.00	0.1460	$27.01
26	Operating costs	$5.33	0.1352	$0.72
27	Operating costs	$5.54	0.1252	$0.69
28	Operating costs	$5.77	0.1159	$0.67
29	Operating costs	$6.00	0.1073	$0.64
30	Operating costs	$6.24	0.0994	$0.62
31	Operating costs	$6.49	0.0920	$0.60
32	Operating costs	$6.75	0.0852	$0.58
33	Operating costs	$7.02	0.0789	$0.55
34	Operating costs	$7.30	0.0730	$0.53
35	Operating costs	$7.59	0.0676	$0.51
36	Operating costs	$7.89	0.0626	$0.49
37	Operating costs	$8.21	0.0580	$0.48
38	Operating costs	$8.54	0.0537	$0.46
39	Operating costs	$8.88	0.0497	$0.44
40	Operating costs	$9.23	0.0460	$0.42
41	Operating costs	$9.60	0.0426	$0.41
42	Operating costs	$9.99	0.0395	$0.39
43	Operating costs	$10.39	0.0365	$0.38
44	Operating costs	$10.80	0.0338	$0.37
45	Operating costs	$11.23	0.0313	$0.35
46	Operating costs	$11.68	0.0290	$0.34
47	Operating costs	$12.15	0.0269	$0.33
48	Operating costs	$12.64	0.0249	$0.31
49	Operating costs	$13.14	0.0230	$0.30
50	Operating costs	$13.67	0.0213	$0.29
50	Salvage Value	($30.00)	0.0213	($0.64)
	Net cash outflow			$773.80

Cantilever Bridge:

Year	Particulars (Figures in Million)	Cash flow	Present value Factor @8%	Present value
0	Installation Cost	$470.00	1.0000	$470.00
0	Land Cost	$95.00	1.0000	$95.00
1	Operating Costs	$3.00	0.9259	$2.78
2	Operating Costs	$3.09	0.8573	$2.65
3	Operating Costs	$3.18	0.7938	$2.52
4	Operating Costs	$3.28	0.7350	$2.41
5	Operating Costs	$3.38	0.6806	$2.30
6	Operating Costs	$3.48	0.6302	$2.19
7	Operating Costs	$3.58	0.5835	$2.09
8	Operating Costs	$3.69	0.5403	$1.99
9	Operating Costs	$3.80	0.5002	$1.90
10	Operating Costs	$3.91	0.4632	$1.81
11	Operating Costs	$4.03	0.4289	$1.73
12	Operating Costs	$4.15	0.3971	$1.65
13	Operating Costs	$4.28	0.3677	$1.57
14	Operating Costs	$4.41	0.3405	$1.50
15	Operating Costs	$4.54	0.3152	$1.43
16	Operating Costs	$4.67	0.2919	$1.36
17	Operating Costs	$4.81	0.2703	$1.30
18	Operating Costs	$4.96	0.2502	$1.24
19	Operating Costs	$5.11	0.2317	$1.18
20	Operating Costs	$5.26	0.2145	$1.13
21	Operating Costs	$5.42	0.1987	$1.08
22	Operating Costs	$5.58	0.1839	$1.03
23	Operating Costs	$5.75	0.1703	$0.98
24	Operating Costs	$5.92	0.1577	$0.93
25	Operating Costs	$6.10	0.1460	$0.89
25	Maintenance Cost	$210.00	0.1460	$30.66
26	Operating costs	$6.28	0.1352	$0.85
27	Operating costs	$6.47	0.1252	$0.81
28	Operating costs	$6.66	0.1159	$0.77
29	Operating costs	$6.86	0.1073	$0.74
30	Operating costs	$7.07	0.0994	$0.70
31	Operating costs	$7.28	0.0920	$0.67
32	Operating costs	$7.50	0.0852	$0.64
33	Operating costs	$7.73	0.0789	$0.61
34	Operating costs	$7.96	0.0730	$0.58
35	Operating costs	$8.20	0.0676	$0.55
36	Operating costs	$8.44	0.0626	$0.53
37	Operating costs	$8.69	0.0580	$0.50
38	Operating costs	$8.96	0.0537	$0.48
39	Operating costs	$9.22	0.0497	$0.46
40	Operating costs	$9.50	0.0460	$0.44
41	Operating costs	$9.79	0.0426	$0.42
42	Operating costs	$10.08	0.0395	$0.40
43	Operating costs	$10.38	0.0365	$0.38
44	Operating costs	$10.69	0.0338	$0.36
45	Operating costs	$11.01	0.0313	$0.34
46	Operating costs	$11.34	0.0290	$0.33
47	Operating costs	$11.69	0.0269	$0.31
48	Operating costs	$12.04	0.0249	$0.30
49	Operating costs	$12.40	0.0230	$0.29
50	Operating costs	$12.77	0.0213	$0.27
50	Salvage Value	($27.00)	0.0213	($0.58)
	Net cash outflow			$649.48

Net present value is the difference of Sum of Present values of cash inflows and Sum of Present values of cash outflows. If the value is positive then the project may be accepted. While evaluation of two or more alternatives takes place, then the proposal with the higher net present value may be selected since it results in a greater cash inflow over the duration of the project.

In the given scenario, Present values are calculated by calculating the present values of cash inflows in the form of salvage value and cash outflows such as installation cost and operating cost.

In case of the suspension bridge, Installation Cost is $575 Million, Land Cost is $120 Million and Annual Operating costs are $2 Million with an increase of 4% each year. There is a maintenance cost of $180 Million in Year 25.Salvage value in year 50 is $30 Million.

In case of the cantilever bridge, Installation Cost is $470 Million, Land Cost is $95 Million and Annual Operating costs are $3 Million with an increase of 3% each year. There is a maintenance cost of $210 Million in Year 25. Salvage value in year 50 is $27 Million.

Present value factor is calculated as 1/1.08 ^ N where N is the year of operation of the bridge.

Conclusion:

Hence the bridge to be constructed is the Cantilever bridge, since it results in lower overall cash outflow over the period of 50 years.

Want to see more full solutions like this?

Subscribe now to access step-by-step solutions to millions of textbook problems written by subject matter experts!

Students have asked these similar questions

A health study tracked a group of persons for five years. At the beginning of the study, 20%were classified as heavy smokers, 30% as light smokers, and 50% as nonsmokers. Resultsof the study showed that light smokers were twice as likely as nonsmokers to die duringthe five-year study, but only half as likely as heavy smokers.A randomly selected participant from the study died during the five-year period. Calculatethe probability that the participant was a heavy smoker

Consider two assets with the following returns: State Prob. of state R₁ R2 1 23 13 25% 5% 2 -10% 1% Compute the optimal portfolio for an investor having a Bernoulli utility of net returns u(r) = 2√√r+ 10. Compute the certainty equivalent of the optimal portfolio. Do the results change if short-selling is not allowed? If so, how?

In the graph at the right, the average variable cost is curve ☐. The average total cost is curve marginal cost is curve The C Cost per Unit ($) Per Unit Costs A 0 Output Quantity B

Answer 2

Question

Chapter 5, Problem 33P

To determine

Which of the two alternatives should be selected.

Expert Solution & Answer

Answer to Problem 33P

The Option to be implemented is Cantilever bridge, since it results in a lower cash outflow for a period of 50 years.

Explanation of Solution

Given information: (all costs in $Million)

Installation Cost:

Suspension Bridge $585

Cantilever Bridge $470

Land acquisition Cost:

Suspension Bridge $120

Cantilever Bridge $95

Annual Operation and Maintenance costs:

Suspension Bridge $2

Cantilever Bridge $3

Annual Increase in Operation and Maintenance costs:

Suspension Bridge 4%

Cantilever Bridge 3%

Salvage Value in year 50:

Suspension Bridge $30

Cantilever Bridge $27

Rate of Interest for calculation: 8%.

Based on the above information, the following tables outlines the net present value calculation of the two options.

Suspension Bridge:

Year	Particulars (Figures in Million)	Cash flow	Present value Factor @8%	Present value
0	Installation Cost	$585.00	1.0000	$585.00
0	Land Cost	$120.00	1.0000	$120.00
1	Operating Costs	$2.00	0.9259	$1.85
2	Operating Costs	$2.08	0.8573	$1.78
3	Operating Costs	$2.16	0.7938	$1.71
4	Operating Costs	$2.25	0.7350	$1.65
5	Operating Costs	$2.34	0.6806	$1.59
6	Operating Costs	$2.43	0.6302	$1.53
7	Operating Costs	$2.53	0.5835	$1.48
8	Operating Costs	$2.63	0.5403	$1.42
9	Operating Costs	$2.74	0.5002	$1.37
10	Operating Costs	$2.85	0.4632	$1.32
11	Operating Costs	$2.96	0.4289	$1.27
12	Operating Costs	$3.08	0.3971	$1.22
13	Operating Costs	$3.20	0.3677	$1.18
14	Operating Costs	$3.33	0.3405	$1.13
15	Operating Costs	$3.46	0.3152	$1.09
16	Operating Costs	$3.60	0.2919	$1.05
17	Operating Costs	$3.75	0.2703	$1.01
18	Operating Costs	$3.90	0.2502	$0.98
19	Operating Costs	$4.05	0.2317	$0.94
20	Operating Costs	$4.21	0.2145	$0.90
21	Operating Costs	$4.38	0.1987	$0.87
22	Operating Costs	$4.56	0.1839	$0.84
23	Operating Costs	$4.74	0.1703	$0.81
24	Operating Costs	$4.93	0.1577	$0.78
25	Operating Costs	$5.13	0.1460	$0.75
25	Maintenance Cost	$185.00	0.1460	$27.01
26	Operating costs	$5.33	0.1352	$0.72
27	Operating costs	$5.54	0.1252	$0.69
28	Operating costs	$5.77	0.1159	$0.67
29	Operating costs	$6.00	0.1073	$0.64
30	Operating costs	$6.24	0.0994	$0.62
31	Operating costs	$6.49	0.0920	$0.60
32	Operating costs	$6.75	0.0852	$0.58
33	Operating costs	$7.02	0.0789	$0.55
34	Operating costs	$7.30	0.0730	$0.53
35	Operating costs	$7.59	0.0676	$0.51
36	Operating costs	$7.89	0.0626	$0.49
37	Operating costs	$8.21	0.0580	$0.48
38	Operating costs	$8.54	0.0537	$0.46
39	Operating costs	$8.88	0.0497	$0.44
40	Operating costs	$9.23	0.0460	$0.42
41	Operating costs	$9.60	0.0426	$0.41
42	Operating costs	$9.99	0.0395	$0.39
43	Operating costs	$10.39	0.0365	$0.38
44	Operating costs	$10.80	0.0338	$0.37
45	Operating costs	$11.23	0.0313	$0.35
46	Operating costs	$11.68	0.0290	$0.34
47	Operating costs	$12.15	0.0269	$0.33
48	Operating costs	$12.64	0.0249	$0.31
49	Operating costs	$13.14	0.0230	$0.30
50	Operating costs	$13.67	0.0213	$0.29
50	Salvage Value	($30.00)	0.0213	($0.64)
	Net cash outflow			$773.80

Cantilever Bridge:

Year	Particulars (Figures in Million)	Cash flow	Present value Factor @8%	Present value
0	Installation Cost	$470.00	1.0000	$470.00
0	Land Cost	$95.00	1.0000	$95.00
1	Operating Costs	$3.00	0.9259	$2.78
2	Operating Costs	$3.09	0.8573	$2.65
3	Operating Costs	$3.18	0.7938	$2.52
4	Operating Costs	$3.28	0.7350	$2.41
5	Operating Costs	$3.38	0.6806	$2.30
6	Operating Costs	$3.48	0.6302	$2.19
7	Operating Costs	$3.58	0.5835	$2.09
8	Operating Costs	$3.69	0.5403	$1.99
9	Operating Costs	$3.80	0.5002	$1.90
10	Operating Costs	$3.91	0.4632	$1.81
11	Operating Costs	$4.03	0.4289	$1.73
12	Operating Costs	$4.15	0.3971	$1.65
13	Operating Costs	$4.28	0.3677	$1.57
14	Operating Costs	$4.41	0.3405	$1.50
15	Operating Costs	$4.54	0.3152	$1.43
16	Operating Costs	$4.67	0.2919	$1.36
17	Operating Costs	$4.81	0.2703	$1.30
18	Operating Costs	$4.96	0.2502	$1.24
19	Operating Costs	$5.11	0.2317	$1.18
20	Operating Costs	$5.26	0.2145	$1.13
21	Operating Costs	$5.42	0.1987	$1.08
22	Operating Costs	$5.58	0.1839	$1.03
23	Operating Costs	$5.75	0.1703	$0.98
24	Operating Costs	$5.92	0.1577	$0.93
25	Operating Costs	$6.10	0.1460	$0.89
25	Maintenance Cost	$210.00	0.1460	$30.66
26	Operating costs	$6.28	0.1352	$0.85
27	Operating costs	$6.47	0.1252	$0.81
28	Operating costs	$6.66	0.1159	$0.77
29	Operating costs	$6.86	0.1073	$0.74
30	Operating costs	$7.07	0.0994	$0.70
31	Operating costs	$7.28	0.0920	$0.67
32	Operating costs	$7.50	0.0852	$0.64
33	Operating costs	$7.73	0.0789	$0.61
34	Operating costs	$7.96	0.0730	$0.58
35	Operating costs	$8.20	0.0676	$0.55
36	Operating costs	$8.44	0.0626	$0.53
37	Operating costs	$8.69	0.0580	$0.50
38	Operating costs	$8.96	0.0537	$0.48
39	Operating costs	$9.22	0.0497	$0.46
40	Operating costs	$9.50	0.0460	$0.44
41	Operating costs	$9.79	0.0426	$0.42
42	Operating costs	$10.08	0.0395	$0.40
43	Operating costs	$10.38	0.0365	$0.38
44	Operating costs	$10.69	0.0338	$0.36
45	Operating costs	$11.01	0.0313	$0.34
46	Operating costs	$11.34	0.0290	$0.33
47	Operating costs	$11.69	0.0269	$0.31
48	Operating costs	$12.04	0.0249	$0.30
49	Operating costs	$12.40	0.0230	$0.29
50	Operating costs	$12.77	0.0213	$0.27
50	Salvage Value	($27.00)	0.0213	($0.58)
	Net cash outflow			$649.48

Net present value is the difference of Sum of Present values of cash inflows and Sum of Present values of cash outflows. If the value is positive then the project may be accepted. While evaluation of two or more alternatives takes place, then the proposal with the higher net present value may be selected since it results in a greater cash inflow over the duration of the project.

In the given scenario, Present values are calculated by calculating the present values of cash inflows in the form of salvage value and cash outflows such as installation cost and operating cost.

In case of the suspension bridge, Installation Cost is $575 Million, Land Cost is $120 Million and Annual Operating costs are $2 Million with an increase of 4% each year. There is a maintenance cost of $180 Million in Year 25.Salvage value in year 50 is $30 Million.

In case of the cantilever bridge, Installation Cost is $470 Million, Land Cost is $95 Million and Annual Operating costs are $3 Million with an increase of 3% each year. There is a maintenance cost of $210 Million in Year 25. Salvage value in year 50 is $27 Million.

Present value factor is calculated as 1/1.08 ^ N where N is the year of operation of the bridge.

Conclusion:

Hence the bridge to be constructed is the Cantilever bridge, since it results in lower overall cash outflow over the period of 50 years.

Want to see more full solutions like this?

Subscribe now to access step-by-step solutions to millions of textbook problems written by subject matter experts!

Answer 3

Question

Chapter 5, Problem 33P

To determine

Which of the two alternatives should be selected.

Expert Solution & Answer

Answer to Problem 33P

The Option to be implemented is Cantilever bridge, since it results in a lower cash outflow for a period of 50 years.

Explanation of Solution

Given information: (all costs in $Million)

Installation Cost:

Suspension Bridge $585

Cantilever Bridge $470

Land acquisition Cost:

Suspension Bridge $120

Cantilever Bridge $95

Annual Operation and Maintenance costs:

Suspension Bridge $2

Cantilever Bridge $3

Annual Increase in Operation and Maintenance costs:

Suspension Bridge 4%

Cantilever Bridge 3%

Salvage Value in year 50:

Suspension Bridge $30

Cantilever Bridge $27

Rate of Interest for calculation: 8%.

Based on the above information, the following tables outlines the net present value calculation of the two options.

Suspension Bridge:

Year	Particulars (Figures in Million)	Cash flow	Present value Factor @8%	Present value
0	Installation Cost	$585.00	1.0000	$585.00
0	Land Cost	$120.00	1.0000	$120.00
1	Operating Costs	$2.00	0.9259	$1.85
2	Operating Costs	$2.08	0.8573	$1.78
3	Operating Costs	$2.16	0.7938	$1.71
4	Operating Costs	$2.25	0.7350	$1.65
5	Operating Costs	$2.34	0.6806	$1.59
6	Operating Costs	$2.43	0.6302	$1.53
7	Operating Costs	$2.53	0.5835	$1.48
8	Operating Costs	$2.63	0.5403	$1.42
9	Operating Costs	$2.74	0.5002	$1.37
10	Operating Costs	$2.85	0.4632	$1.32
11	Operating Costs	$2.96	0.4289	$1.27
12	Operating Costs	$3.08	0.3971	$1.22
13	Operating Costs	$3.20	0.3677	$1.18
14	Operating Costs	$3.33	0.3405	$1.13
15	Operating Costs	$3.46	0.3152	$1.09
16	Operating Costs	$3.60	0.2919	$1.05
17	Operating Costs	$3.75	0.2703	$1.01
18	Operating Costs	$3.90	0.2502	$0.98
19	Operating Costs	$4.05	0.2317	$0.94
20	Operating Costs	$4.21	0.2145	$0.90
21	Operating Costs	$4.38	0.1987	$0.87
22	Operating Costs	$4.56	0.1839	$0.84
23	Operating Costs	$4.74	0.1703	$0.81
24	Operating Costs	$4.93	0.1577	$0.78
25	Operating Costs	$5.13	0.1460	$0.75
25	Maintenance Cost	$185.00	0.1460	$27.01
26	Operating costs	$5.33	0.1352	$0.72
27	Operating costs	$5.54	0.1252	$0.69
28	Operating costs	$5.77	0.1159	$0.67
29	Operating costs	$6.00	0.1073	$0.64
30	Operating costs	$6.24	0.0994	$0.62
31	Operating costs	$6.49	0.0920	$0.60
32	Operating costs	$6.75	0.0852	$0.58
33	Operating costs	$7.02	0.0789	$0.55
34	Operating costs	$7.30	0.0730	$0.53
35	Operating costs	$7.59	0.0676	$0.51
36	Operating costs	$7.89	0.0626	$0.49
37	Operating costs	$8.21	0.0580	$0.48
38	Operating costs	$8.54	0.0537	$0.46
39	Operating costs	$8.88	0.0497	$0.44
40	Operating costs	$9.23	0.0460	$0.42
41	Operating costs	$9.60	0.0426	$0.41
42	Operating costs	$9.99	0.0395	$0.39
43	Operating costs	$10.39	0.0365	$0.38
44	Operating costs	$10.80	0.0338	$0.37
45	Operating costs	$11.23	0.0313	$0.35
46	Operating costs	$11.68	0.0290	$0.34
47	Operating costs	$12.15	0.0269	$0.33
48	Operating costs	$12.64	0.0249	$0.31
49	Operating costs	$13.14	0.0230	$0.30
50	Operating costs	$13.67	0.0213	$0.29
50	Salvage Value	($30.00)	0.0213	($0.64)
	Net cash outflow			$773.80

Cantilever Bridge:

Year	Particulars (Figures in Million)	Cash flow	Present value Factor @8%	Present value
0	Installation Cost	$470.00	1.0000	$470.00
0	Land Cost	$95.00	1.0000	$95.00
1	Operating Costs	$3.00	0.9259	$2.78
2	Operating Costs	$3.09	0.8573	$2.65
3	Operating Costs	$3.18	0.7938	$2.52
4	Operating Costs	$3.28	0.7350	$2.41
5	Operating Costs	$3.38	0.6806	$2.30
6	Operating Costs	$3.48	0.6302	$2.19
7	Operating Costs	$3.58	0.5835	$2.09
8	Operating Costs	$3.69	0.5403	$1.99
9	Operating Costs	$3.80	0.5002	$1.90
10	Operating Costs	$3.91	0.4632	$1.81
11	Operating Costs	$4.03	0.4289	$1.73
12	Operating Costs	$4.15	0.3971	$1.65
13	Operating Costs	$4.28	0.3677	$1.57
14	Operating Costs	$4.41	0.3405	$1.50
15	Operating Costs	$4.54	0.3152	$1.43
16	Operating Costs	$4.67	0.2919	$1.36
17	Operating Costs	$4.81	0.2703	$1.30
18	Operating Costs	$4.96	0.2502	$1.24
19	Operating Costs	$5.11	0.2317	$1.18
20	Operating Costs	$5.26	0.2145	$1.13
21	Operating Costs	$5.42	0.1987	$1.08
22	Operating Costs	$5.58	0.1839	$1.03
23	Operating Costs	$5.75	0.1703	$0.98
24	Operating Costs	$5.92	0.1577	$0.93
25	Operating Costs	$6.10	0.1460	$0.89
25	Maintenance Cost	$210.00	0.1460	$30.66
26	Operating costs	$6.28	0.1352	$0.85
27	Operating costs	$6.47	0.1252	$0.81
28	Operating costs	$6.66	0.1159	$0.77
29	Operating costs	$6.86	0.1073	$0.74
30	Operating costs	$7.07	0.0994	$0.70
31	Operating costs	$7.28	0.0920	$0.67
32	Operating costs	$7.50	0.0852	$0.64
33	Operating costs	$7.73	0.0789	$0.61
34	Operating costs	$7.96	0.0730	$0.58
35	Operating costs	$8.20	0.0676	$0.55
36	Operating costs	$8.44	0.0626	$0.53
37	Operating costs	$8.69	0.0580	$0.50
38	Operating costs	$8.96	0.0537	$0.48
39	Operating costs	$9.22	0.0497	$0.46
40	Operating costs	$9.50	0.0460	$0.44
41	Operating costs	$9.79	0.0426	$0.42
42	Operating costs	$10.08	0.0395	$0.40
43	Operating costs	$10.38	0.0365	$0.38
44	Operating costs	$10.69	0.0338	$0.36
45	Operating costs	$11.01	0.0313	$0.34
46	Operating costs	$11.34	0.0290	$0.33
47	Operating costs	$11.69	0.0269	$0.31
48	Operating costs	$12.04	0.0249	$0.30
49	Operating costs	$12.40	0.0230	$0.29
50	Operating costs	$12.77	0.0213	$0.27
50	Salvage Value	($27.00)	0.0213	($0.58)
	Net cash outflow			$649.48

Net present value is the difference of Sum of Present values of cash inflows and Sum of Present values of cash outflows. If the value is positive then the project may be accepted. While evaluation of two or more alternatives takes place, then the proposal with the higher net present value may be selected since it results in a greater cash inflow over the duration of the project.

In the given scenario, Present values are calculated by calculating the present values of cash inflows in the form of salvage value and cash outflows such as installation cost and operating cost.

In case of the suspension bridge, Installation Cost is $575 Million, Land Cost is $120 Million and Annual Operating costs are $2 Million with an increase of 4% each year. There is a maintenance cost of $180 Million in Year 25.Salvage value in year 50 is $30 Million.

In case of the cantilever bridge, Installation Cost is $470 Million, Land Cost is $95 Million and Annual Operating costs are $3 Million with an increase of 3% each year. There is a maintenance cost of $210 Million in Year 25. Salvage value in year 50 is $27 Million.

Present value factor is calculated as 1/1.08 ^ N where N is the year of operation of the bridge.

Conclusion:

Hence the bridge to be constructed is the Cantilever bridge, since it results in lower overall cash outflow over the period of 50 years.

Want to see more full solutions like this?

Subscribe now to access step-by-step solutions to millions of textbook problems written by subject matter experts!

Answer 4

Question

Chapter 5, Problem 33P

To determine

Which of the two alternatives should be selected.

Expert Solution & Answer

Answer to Problem 33P

The Option to be implemented is Cantilever bridge, since it results in a lower cash outflow for a period of 50 years.

Explanation of Solution

Given information: (all costs in $Million)

Installation Cost:

Suspension Bridge $585

Cantilever Bridge $470

Land acquisition Cost:

Suspension Bridge $120

Cantilever Bridge $95

Annual Operation and Maintenance costs:

Suspension Bridge $2

Cantilever Bridge $3

Annual Increase in Operation and Maintenance costs:

Suspension Bridge 4%

Cantilever Bridge 3%

Salvage Value in year 50:

Suspension Bridge $30

Cantilever Bridge $27

Rate of Interest for calculation: 8%.

Based on the above information, the following tables outlines the net present value calculation of the two options.

Suspension Bridge:

Year	Particulars (Figures in Million)	Cash flow	Present value Factor @8%	Present value
0	Installation Cost	$585.00	1.0000	$585.00
0	Land Cost	$120.00	1.0000	$120.00
1	Operating Costs	$2.00	0.9259	$1.85
2	Operating Costs	$2.08	0.8573	$1.78
3	Operating Costs	$2.16	0.7938	$1.71
4	Operating Costs	$2.25	0.7350	$1.65
5	Operating Costs	$2.34	0.6806	$1.59
6	Operating Costs	$2.43	0.6302	$1.53
7	Operating Costs	$2.53	0.5835	$1.48
8	Operating Costs	$2.63	0.5403	$1.42
9	Operating Costs	$2.74	0.5002	$1.37
10	Operating Costs	$2.85	0.4632	$1.32
11	Operating Costs	$2.96	0.4289	$1.27
12	Operating Costs	$3.08	0.3971	$1.22
13	Operating Costs	$3.20	0.3677	$1.18
14	Operating Costs	$3.33	0.3405	$1.13
15	Operating Costs	$3.46	0.3152	$1.09
16	Operating Costs	$3.60	0.2919	$1.05
17	Operating Costs	$3.75	0.2703	$1.01
18	Operating Costs	$3.90	0.2502	$0.98
19	Operating Costs	$4.05	0.2317	$0.94
20	Operating Costs	$4.21	0.2145	$0.90
21	Operating Costs	$4.38	0.1987	$0.87
22	Operating Costs	$4.56	0.1839	$0.84
23	Operating Costs	$4.74	0.1703	$0.81
24	Operating Costs	$4.93	0.1577	$0.78
25	Operating Costs	$5.13	0.1460	$0.75
25	Maintenance Cost	$185.00	0.1460	$27.01
26	Operating costs	$5.33	0.1352	$0.72
27	Operating costs	$5.54	0.1252	$0.69
28	Operating costs	$5.77	0.1159	$0.67
29	Operating costs	$6.00	0.1073	$0.64
30	Operating costs	$6.24	0.0994	$0.62
31	Operating costs	$6.49	0.0920	$0.60
32	Operating costs	$6.75	0.0852	$0.58
33	Operating costs	$7.02	0.0789	$0.55
34	Operating costs	$7.30	0.0730	$0.53
35	Operating costs	$7.59	0.0676	$0.51
36	Operating costs	$7.89	0.0626	$0.49
37	Operating costs	$8.21	0.0580	$0.48
38	Operating costs	$8.54	0.0537	$0.46
39	Operating costs	$8.88	0.0497	$0.44
40	Operating costs	$9.23	0.0460	$0.42
41	Operating costs	$9.60	0.0426	$0.41
42	Operating costs	$9.99	0.0395	$0.39
43	Operating costs	$10.39	0.0365	$0.38
44	Operating costs	$10.80	0.0338	$0.37
45	Operating costs	$11.23	0.0313	$0.35
46	Operating costs	$11.68	0.0290	$0.34
47	Operating costs	$12.15	0.0269	$0.33
48	Operating costs	$12.64	0.0249	$0.31
49	Operating costs	$13.14	0.0230	$0.30
50	Operating costs	$13.67	0.0213	$0.29
50	Salvage Value	($30.00)	0.0213	($0.64)
	Net cash outflow			$773.80

Cantilever Bridge:

Year	Particulars (Figures in Million)	Cash flow	Present value Factor @8%	Present value
0	Installation Cost	$470.00	1.0000	$470.00
0	Land Cost	$95.00	1.0000	$95.00
1	Operating Costs	$3.00	0.9259	$2.78
2	Operating Costs	$3.09	0.8573	$2.65
3	Operating Costs	$3.18	0.7938	$2.52
4	Operating Costs	$3.28	0.7350	$2.41
5	Operating Costs	$3.38	0.6806	$2.30
6	Operating Costs	$3.48	0.6302	$2.19
7	Operating Costs	$3.58	0.5835	$2.09
8	Operating Costs	$3.69	0.5403	$1.99
9	Operating Costs	$3.80	0.5002	$1.90
10	Operating Costs	$3.91	0.4632	$1.81
11	Operating Costs	$4.03	0.4289	$1.73
12	Operating Costs	$4.15	0.3971	$1.65
13	Operating Costs	$4.28	0.3677	$1.57
14	Operating Costs	$4.41	0.3405	$1.50
15	Operating Costs	$4.54	0.3152	$1.43
16	Operating Costs	$4.67	0.2919	$1.36
17	Operating Costs	$4.81	0.2703	$1.30
18	Operating Costs	$4.96	0.2502	$1.24
19	Operating Costs	$5.11	0.2317	$1.18
20	Operating Costs	$5.26	0.2145	$1.13
21	Operating Costs	$5.42	0.1987	$1.08
22	Operating Costs	$5.58	0.1839	$1.03
23	Operating Costs	$5.75	0.1703	$0.98
24	Operating Costs	$5.92	0.1577	$0.93
25	Operating Costs	$6.10	0.1460	$0.89
25	Maintenance Cost	$210.00	0.1460	$30.66
26	Operating costs	$6.28	0.1352	$0.85
27	Operating costs	$6.47	0.1252	$0.81
28	Operating costs	$6.66	0.1159	$0.77
29	Operating costs	$6.86	0.1073	$0.74
30	Operating costs	$7.07	0.0994	$0.70
31	Operating costs	$7.28	0.0920	$0.67
32	Operating costs	$7.50	0.0852	$0.64
33	Operating costs	$7.73	0.0789	$0.61
34	Operating costs	$7.96	0.0730	$0.58
35	Operating costs	$8.20	0.0676	$0.55
36	Operating costs	$8.44	0.0626	$0.53
37	Operating costs	$8.69	0.0580	$0.50
38	Operating costs	$8.96	0.0537	$0.48
39	Operating costs	$9.22	0.0497	$0.46
40	Operating costs	$9.50	0.0460	$0.44
41	Operating costs	$9.79	0.0426	$0.42
42	Operating costs	$10.08	0.0395	$0.40
43	Operating costs	$10.38	0.0365	$0.38
44	Operating costs	$10.69	0.0338	$0.36
45	Operating costs	$11.01	0.0313	$0.34
46	Operating costs	$11.34	0.0290	$0.33
47	Operating costs	$11.69	0.0269	$0.31
48	Operating costs	$12.04	0.0249	$0.30
49	Operating costs	$12.40	0.0230	$0.29
50	Operating costs	$12.77	0.0213	$0.27
50	Salvage Value	($27.00)	0.0213	($0.58)
	Net cash outflow			$649.48

Net present value is the difference of Sum of Present values of cash inflows and Sum of Present values of cash outflows. If the value is positive then the project may be accepted. While evaluation of two or more alternatives takes place, then the proposal with the higher net present value may be selected since it results in a greater cash inflow over the duration of the project.

In the given scenario, Present values are calculated by calculating the present values of cash inflows in the form of salvage value and cash outflows such as installation cost and operating cost.

In case of the suspension bridge, Installation Cost is $575 Million, Land Cost is $120 Million and Annual Operating costs are $2 Million with an increase of 4% each year. There is a maintenance cost of $180 Million in Year 25.Salvage value in year 50 is $30 Million.

In case of the cantilever bridge, Installation Cost is $470 Million, Land Cost is $95 Million and Annual Operating costs are $3 Million with an increase of 3% each year. There is a maintenance cost of $210 Million in Year 25. Salvage value in year 50 is $27 Million.

Present value factor is calculated as 1/1.08 ^ N where N is the year of operation of the bridge.

Conclusion:

Hence the bridge to be constructed is the Cantilever bridge, since it results in lower overall cash outflow over the period of 50 years.

Want to see more full solutions like this?

Subscribe now to access step-by-step solutions to millions of textbook problems written by subject matter experts!

Answer 5

Chapter 5, Problem 33P

To determine

Which of the two alternatives should be selected.

Expert Solution & Answer

Answer to Problem 33P

The Option to be implemented is Cantilever bridge, since it results in a lower cash outflow for a period of 50 years.

Explanation of Solution

Given information: (all costs in $Million)

Installation Cost:

Suspension Bridge $585

Cantilever Bridge $470

Land acquisition Cost:

Suspension Bridge $120

Cantilever Bridge $95

Annual Operation and Maintenance costs:

Suspension Bridge $2

Cantilever Bridge $3

Annual Increase in Operation and Maintenance costs:

Suspension Bridge 4%

Cantilever Bridge 3%

Salvage Value in year 50:

Suspension Bridge $30

Cantilever Bridge $27

Rate of Interest for calculation: 8%.

Based on the above information, the following tables outlines the net present value calculation of the two options.

Suspension Bridge:

Year	Particulars (Figures in Million)	Cash flow	Present value Factor @8%	Present value
0	Installation Cost	$585.00	1.0000	$585.00
0	Land Cost	$120.00	1.0000	$120.00
1	Operating Costs	$2.00	0.9259	$1.85
2	Operating Costs	$2.08	0.8573	$1.78
3	Operating Costs	$2.16	0.7938	$1.71
4	Operating Costs	$2.25	0.7350	$1.65
5	Operating Costs	$2.34	0.6806	$1.59
6	Operating Costs	$2.43	0.6302	$1.53
7	Operating Costs	$2.53	0.5835	$1.48
8	Operating Costs	$2.63	0.5403	$1.42
9	Operating Costs	$2.74	0.5002	$1.37
10	Operating Costs	$2.85	0.4632	$1.32
11	Operating Costs	$2.96	0.4289	$1.27
12	Operating Costs	$3.08	0.3971	$1.22
13	Operating Costs	$3.20	0.3677	$1.18
14	Operating Costs	$3.33	0.3405	$1.13
15	Operating Costs	$3.46	0.3152	$1.09
16	Operating Costs	$3.60	0.2919	$1.05
17	Operating Costs	$3.75	0.2703	$1.01
18	Operating Costs	$3.90	0.2502	$0.98
19	Operating Costs	$4.05	0.2317	$0.94
20	Operating Costs	$4.21	0.2145	$0.90
21	Operating Costs	$4.38	0.1987	$0.87
22	Operating Costs	$4.56	0.1839	$0.84
23	Operating Costs	$4.74	0.1703	$0.81
24	Operating Costs	$4.93	0.1577	$0.78
25	Operating Costs	$5.13	0.1460	$0.75
25	Maintenance Cost	$185.00	0.1460	$27.01
26	Operating costs	$5.33	0.1352	$0.72
27	Operating costs	$5.54	0.1252	$0.69
28	Operating costs	$5.77	0.1159	$0.67
29	Operating costs	$6.00	0.1073	$0.64
30	Operating costs	$6.24	0.0994	$0.62
31	Operating costs	$6.49	0.0920	$0.60
32	Operating costs	$6.75	0.0852	$0.58
33	Operating costs	$7.02	0.0789	$0.55
34	Operating costs	$7.30	0.0730	$0.53
35	Operating costs	$7.59	0.0676	$0.51
36	Operating costs	$7.89	0.0626	$0.49
37	Operating costs	$8.21	0.0580	$0.48
38	Operating costs	$8.54	0.0537	$0.46
39	Operating costs	$8.88	0.0497	$0.44
40	Operating costs	$9.23	0.0460	$0.42
41	Operating costs	$9.60	0.0426	$0.41
42	Operating costs	$9.99	0.0395	$0.39
43	Operating costs	$10.39	0.0365	$0.38
44	Operating costs	$10.80	0.0338	$0.37
45	Operating costs	$11.23	0.0313	$0.35
46	Operating costs	$11.68	0.0290	$0.34
47	Operating costs	$12.15	0.0269	$0.33
48	Operating costs	$12.64	0.0249	$0.31
49	Operating costs	$13.14	0.0230	$0.30
50	Operating costs	$13.67	0.0213	$0.29
50	Salvage Value	($30.00)	0.0213	($0.64)
	Net cash outflow			$773.80

Cantilever Bridge:

Year	Particulars (Figures in Million)	Cash flow	Present value Factor @8%	Present value
0	Installation Cost	$470.00	1.0000	$470.00
0	Land Cost	$95.00	1.0000	$95.00
1	Operating Costs	$3.00	0.9259	$2.78
2	Operating Costs	$3.09	0.8573	$2.65
3	Operating Costs	$3.18	0.7938	$2.52
4	Operating Costs	$3.28	0.7350	$2.41
5	Operating Costs	$3.38	0.6806	$2.30
6	Operating Costs	$3.48	0.6302	$2.19
7	Operating Costs	$3.58	0.5835	$2.09
8	Operating Costs	$3.69	0.5403	$1.99
9	Operating Costs	$3.80	0.5002	$1.90
10	Operating Costs	$3.91	0.4632	$1.81
11	Operating Costs	$4.03	0.4289	$1.73
12	Operating Costs	$4.15	0.3971	$1.65
13	Operating Costs	$4.28	0.3677	$1.57
14	Operating Costs	$4.41	0.3405	$1.50
15	Operating Costs	$4.54	0.3152	$1.43
16	Operating Costs	$4.67	0.2919	$1.36
17	Operating Costs	$4.81	0.2703	$1.30
18	Operating Costs	$4.96	0.2502	$1.24
19	Operating Costs	$5.11	0.2317	$1.18
20	Operating Costs	$5.26	0.2145	$1.13
21	Operating Costs	$5.42	0.1987	$1.08
22	Operating Costs	$5.58	0.1839	$1.03
23	Operating Costs	$5.75	0.1703	$0.98
24	Operating Costs	$5.92	0.1577	$0.93
25	Operating Costs	$6.10	0.1460	$0.89
25	Maintenance Cost	$210.00	0.1460	$30.66
26	Operating costs	$6.28	0.1352	$0.85
27	Operating costs	$6.47	0.1252	$0.81
28	Operating costs	$6.66	0.1159	$0.77
29	Operating costs	$6.86	0.1073	$0.74
30	Operating costs	$7.07	0.0994	$0.70
31	Operating costs	$7.28	0.0920	$0.67
32	Operating costs	$7.50	0.0852	$0.64
33	Operating costs	$7.73	0.0789	$0.61
34	Operating costs	$7.96	0.0730	$0.58
35	Operating costs	$8.20	0.0676	$0.55
36	Operating costs	$8.44	0.0626	$0.53
37	Operating costs	$8.69	0.0580	$0.50
38	Operating costs	$8.96	0.0537	$0.48
39	Operating costs	$9.22	0.0497	$0.46
40	Operating costs	$9.50	0.0460	$0.44
41	Operating costs	$9.79	0.0426	$0.42
42	Operating costs	$10.08	0.0395	$0.40
43	Operating costs	$10.38	0.0365	$0.38
44	Operating costs	$10.69	0.0338	$0.36
45	Operating costs	$11.01	0.0313	$0.34
46	Operating costs	$11.34	0.0290	$0.33
47	Operating costs	$11.69	0.0269	$0.31
48	Operating costs	$12.04	0.0249	$0.30
49	Operating costs	$12.40	0.0230	$0.29
50	Operating costs	$12.77	0.0213	$0.27
50	Salvage Value	($27.00)	0.0213	($0.58)
	Net cash outflow			$649.48

Net present value is the difference of Sum of Present values of cash inflows and Sum of Present values of cash outflows. If the value is positive then the project may be accepted. While evaluation of two or more alternatives takes place, then the proposal with the higher net present value may be selected since it results in a greater cash inflow over the duration of the project.

In the given scenario, Present values are calculated by calculating the present values of cash inflows in the form of salvage value and cash outflows such as installation cost and operating cost.

In case of the suspension bridge, Installation Cost is $575 Million, Land Cost is $120 Million and Annual Operating costs are $2 Million with an increase of 4% each year. There is a maintenance cost of $180 Million in Year 25.Salvage value in year 50 is $30 Million.

In case of the cantilever bridge, Installation Cost is $470 Million, Land Cost is $95 Million and Annual Operating costs are $3 Million with an increase of 3% each year. There is a maintenance cost of $210 Million in Year 25. Salvage value in year 50 is $27 Million.

Present value factor is calculated as 1/1.08 ^ N where N is the year of operation of the bridge.

Conclusion:

Hence the bridge to be constructed is the Cantilever bridge, since it results in lower overall cash outflow over the period of 50 years.

Answer 6

Chapter 5, Problem 33P

To determine

Which of the two alternatives should be selected.

Expert Solution & Answer

Answer to Problem 33P

The Option to be implemented is Cantilever bridge, since it results in a lower cash outflow for a period of 50 years.

Explanation of Solution

Given information: (all costs in $Million)

Installation Cost:

Suspension Bridge $585

Cantilever Bridge $470

Land acquisition Cost:

Suspension Bridge $120

Cantilever Bridge $95

Annual Operation and Maintenance costs:

Suspension Bridge $2

Cantilever Bridge $3

Annual Increase in Operation and Maintenance costs:

Suspension Bridge 4%

Cantilever Bridge 3%

Salvage Value in year 50:

Suspension Bridge $30

Cantilever Bridge $27

Rate of Interest for calculation: 8%.

Based on the above information, the following tables outlines the net present value calculation of the two options.

Suspension Bridge:

Year	Particulars (Figures in Million)	Cash flow	Present value Factor @8%	Present value
0	Installation Cost	$585.00	1.0000	$585.00
0	Land Cost	$120.00	1.0000	$120.00
1	Operating Costs	$2.00	0.9259	$1.85
2	Operating Costs	$2.08	0.8573	$1.78
3	Operating Costs	$2.16	0.7938	$1.71
4	Operating Costs	$2.25	0.7350	$1.65
5	Operating Costs	$2.34	0.6806	$1.59
6	Operating Costs	$2.43	0.6302	$1.53
7	Operating Costs	$2.53	0.5835	$1.48
8	Operating Costs	$2.63	0.5403	$1.42
9	Operating Costs	$2.74	0.5002	$1.37
10	Operating Costs	$2.85	0.4632	$1.32
11	Operating Costs	$2.96	0.4289	$1.27
12	Operating Costs	$3.08	0.3971	$1.22
13	Operating Costs	$3.20	0.3677	$1.18
14	Operating Costs	$3.33	0.3405	$1.13
15	Operating Costs	$3.46	0.3152	$1.09
16	Operating Costs	$3.60	0.2919	$1.05
17	Operating Costs	$3.75	0.2703	$1.01
18	Operating Costs	$3.90	0.2502	$0.98
19	Operating Costs	$4.05	0.2317	$0.94
20	Operating Costs	$4.21	0.2145	$0.90
21	Operating Costs	$4.38	0.1987	$0.87
22	Operating Costs	$4.56	0.1839	$0.84
23	Operating Costs	$4.74	0.1703	$0.81
24	Operating Costs	$4.93	0.1577	$0.78
25	Operating Costs	$5.13	0.1460	$0.75
25	Maintenance Cost	$185.00	0.1460	$27.01
26	Operating costs	$5.33	0.1352	$0.72
27	Operating costs	$5.54	0.1252	$0.69
28	Operating costs	$5.77	0.1159	$0.67
29	Operating costs	$6.00	0.1073	$0.64
30	Operating costs	$6.24	0.0994	$0.62
31	Operating costs	$6.49	0.0920	$0.60
32	Operating costs	$6.75	0.0852	$0.58
33	Operating costs	$7.02	0.0789	$0.55
34	Operating costs	$7.30	0.0730	$0.53
35	Operating costs	$7.59	0.0676	$0.51
36	Operating costs	$7.89	0.0626	$0.49
37	Operating costs	$8.21	0.0580	$0.48
38	Operating costs	$8.54	0.0537	$0.46
39	Operating costs	$8.88	0.0497	$0.44
40	Operating costs	$9.23	0.0460	$0.42
41	Operating costs	$9.60	0.0426	$0.41
42	Operating costs	$9.99	0.0395	$0.39
43	Operating costs	$10.39	0.0365	$0.38
44	Operating costs	$10.80	0.0338	$0.37
45	Operating costs	$11.23	0.0313	$0.35
46	Operating costs	$11.68	0.0290	$0.34
47	Operating costs	$12.15	0.0269	$0.33
48	Operating costs	$12.64	0.0249	$0.31
49	Operating costs	$13.14	0.0230	$0.30
50	Operating costs	$13.67	0.0213	$0.29
50	Salvage Value	($30.00)	0.0213	($0.64)
	Net cash outflow			$773.80

Cantilever Bridge:

Year	Particulars (Figures in Million)	Cash flow	Present value Factor @8%	Present value
0	Installation Cost	$470.00	1.0000	$470.00
0	Land Cost	$95.00	1.0000	$95.00
1	Operating Costs	$3.00	0.9259	$2.78
2	Operating Costs	$3.09	0.8573	$2.65
3	Operating Costs	$3.18	0.7938	$2.52
4	Operating Costs	$3.28	0.7350	$2.41
5	Operating Costs	$3.38	0.6806	$2.30
6	Operating Costs	$3.48	0.6302	$2.19
7	Operating Costs	$3.58	0.5835	$2.09
8	Operating Costs	$3.69	0.5403	$1.99
9	Operating Costs	$3.80	0.5002	$1.90
10	Operating Costs	$3.91	0.4632	$1.81
11	Operating Costs	$4.03	0.4289	$1.73
12	Operating Costs	$4.15	0.3971	$1.65
13	Operating Costs	$4.28	0.3677	$1.57
14	Operating Costs	$4.41	0.3405	$1.50
15	Operating Costs	$4.54	0.3152	$1.43
16	Operating Costs	$4.67	0.2919	$1.36
17	Operating Costs	$4.81	0.2703	$1.30
18	Operating Costs	$4.96	0.2502	$1.24
19	Operating Costs	$5.11	0.2317	$1.18
20	Operating Costs	$5.26	0.2145	$1.13
21	Operating Costs	$5.42	0.1987	$1.08
22	Operating Costs	$5.58	0.1839	$1.03
23	Operating Costs	$5.75	0.1703	$0.98
24	Operating Costs	$5.92	0.1577	$0.93
25	Operating Costs	$6.10	0.1460	$0.89
25	Maintenance Cost	$210.00	0.1460	$30.66
26	Operating costs	$6.28	0.1352	$0.85
27	Operating costs	$6.47	0.1252	$0.81
28	Operating costs	$6.66	0.1159	$0.77
29	Operating costs	$6.86	0.1073	$0.74
30	Operating costs	$7.07	0.0994	$0.70
31	Operating costs	$7.28	0.0920	$0.67
32	Operating costs	$7.50	0.0852	$0.64
33	Operating costs	$7.73	0.0789	$0.61
34	Operating costs	$7.96	0.0730	$0.58
35	Operating costs	$8.20	0.0676	$0.55
36	Operating costs	$8.44	0.0626	$0.53
37	Operating costs	$8.69	0.0580	$0.50
38	Operating costs	$8.96	0.0537	$0.48
39	Operating costs	$9.22	0.0497	$0.46
40	Operating costs	$9.50	0.0460	$0.44
41	Operating costs	$9.79	0.0426	$0.42
42	Operating costs	$10.08	0.0395	$0.40
43	Operating costs	$10.38	0.0365	$0.38
44	Operating costs	$10.69	0.0338	$0.36
45	Operating costs	$11.01	0.0313	$0.34
46	Operating costs	$11.34	0.0290	$0.33
47	Operating costs	$11.69	0.0269	$0.31
48	Operating costs	$12.04	0.0249	$0.30
49	Operating costs	$12.40	0.0230	$0.29
50	Operating costs	$12.77	0.0213	$0.27
50	Salvage Value	($27.00)	0.0213	($0.58)
	Net cash outflow			$649.48

Net present value is the difference of Sum of Present values of cash inflows and Sum of Present values of cash outflows. If the value is positive then the project may be accepted. While evaluation of two or more alternatives takes place, then the proposal with the higher net present value may be selected since it results in a greater cash inflow over the duration of the project.

In the given scenario, Present values are calculated by calculating the present values of cash inflows in the form of salvage value and cash outflows such as installation cost and operating cost.

In case of the suspension bridge, Installation Cost is $575 Million, Land Cost is $120 Million and Annual Operating costs are $2 Million with an increase of 4% each year. There is a maintenance cost of $180 Million in Year 25.Salvage value in year 50 is $30 Million.

In case of the cantilever bridge, Installation Cost is $470 Million, Land Cost is $95 Million and Annual Operating costs are $3 Million with an increase of 3% each year. There is a maintenance cost of $210 Million in Year 25. Salvage value in year 50 is $27 Million.

Present value factor is calculated as 1/1.08 ^ N where N is the year of operation of the bridge.

Conclusion:

Hence the bridge to be constructed is the Cantilever bridge, since it results in lower overall cash outflow over the period of 50 years.

Answer 7

Chapter 5, Problem 33P

To determine

Which of the two alternatives should be selected.

Answer 8

Expert Solution & Answer

Answer to Problem 33P

The Option to be implemented is Cantilever bridge, since it results in a lower cash outflow for a period of 50 years.

Answer 9

Expert Solution & Answer

Answer 10

Expert Solution & Answer

Answer 11

Explanation of Solution

Given information: (all costs in $Million)

Installation Cost:

Suspension Bridge $585

Cantilever Bridge $470

Land acquisition Cost:

Suspension Bridge $120

Cantilever Bridge $95

Annual Operation and Maintenance costs:

Suspension Bridge $2

Cantilever Bridge $3

Annual Increase in Operation and Maintenance costs:

Suspension Bridge 4%

Cantilever Bridge 3%

Salvage Value in year 50:

Suspension Bridge $30

Cantilever Bridge $27

Rate of Interest for calculation: 8%.

Based on the above information, the following tables outlines the net present value calculation of the two options.

Suspension Bridge:

Year	Particulars (Figures in Million)	Cash flow	Present value Factor @8%	Present value
0	Installation Cost	$585.00	1.0000	$585.00
0	Land Cost	$120.00	1.0000	$120.00
1	Operating Costs	$2.00	0.9259	$1.85
2	Operating Costs	$2.08	0.8573	$1.78
3	Operating Costs	$2.16	0.7938	$1.71
4	Operating Costs	$2.25	0.7350	$1.65
5	Operating Costs	$2.34	0.6806	$1.59
6	Operating Costs	$2.43	0.6302	$1.53
7	Operating Costs	$2.53	0.5835	$1.48
8	Operating Costs	$2.63	0.5403	$1.42
9	Operating Costs	$2.74	0.5002	$1.37
10	Operating Costs	$2.85	0.4632	$1.32
11	Operating Costs	$2.96	0.4289	$1.27
12	Operating Costs	$3.08	0.3971	$1.22
13	Operating Costs	$3.20	0.3677	$1.18
14	Operating Costs	$3.33	0.3405	$1.13
15	Operating Costs	$3.46	0.3152	$1.09
16	Operating Costs	$3.60	0.2919	$1.05
17	Operating Costs	$3.75	0.2703	$1.01
18	Operating Costs	$3.90	0.2502	$0.98
19	Operating Costs	$4.05	0.2317	$0.94
20	Operating Costs	$4.21	0.2145	$0.90
21	Operating Costs	$4.38	0.1987	$0.87
22	Operating Costs	$4.56	0.1839	$0.84
23	Operating Costs	$4.74	0.1703	$0.81
24	Operating Costs	$4.93	0.1577	$0.78
25	Operating Costs	$5.13	0.1460	$0.75
25	Maintenance Cost	$185.00	0.1460	$27.01
26	Operating costs	$5.33	0.1352	$0.72
27	Operating costs	$5.54	0.1252	$0.69
28	Operating costs	$5.77	0.1159	$0.67
29	Operating costs	$6.00	0.1073	$0.64
30	Operating costs	$6.24	0.0994	$0.62
31	Operating costs	$6.49	0.0920	$0.60
32	Operating costs	$6.75	0.0852	$0.58
33	Operating costs	$7.02	0.0789	$0.55
34	Operating costs	$7.30	0.0730	$0.53
35	Operating costs	$7.59	0.0676	$0.51
36	Operating costs	$7.89	0.0626	$0.49
37	Operating costs	$8.21	0.0580	$0.48
38	Operating costs	$8.54	0.0537	$0.46
39	Operating costs	$8.88	0.0497	$0.44
40	Operating costs	$9.23	0.0460	$0.42
41	Operating costs	$9.60	0.0426	$0.41
42	Operating costs	$9.99	0.0395	$0.39
43	Operating costs	$10.39	0.0365	$0.38
44	Operating costs	$10.80	0.0338	$0.37
45	Operating costs	$11.23	0.0313	$0.35
46	Operating costs	$11.68	0.0290	$0.34
47	Operating costs	$12.15	0.0269	$0.33
48	Operating costs	$12.64	0.0249	$0.31
49	Operating costs	$13.14	0.0230	$0.30
50	Operating costs	$13.67	0.0213	$0.29
50	Salvage Value	($30.00)	0.0213	($0.64)
	Net cash outflow			$773.80

Cantilever Bridge:

Year	Particulars (Figures in Million)	Cash flow	Present value Factor @8%	Present value
0	Installation Cost	$470.00	1.0000	$470.00
0	Land Cost	$95.00	1.0000	$95.00
1	Operating Costs	$3.00	0.9259	$2.78
2	Operating Costs	$3.09	0.8573	$2.65
3	Operating Costs	$3.18	0.7938	$2.52
4	Operating Costs	$3.28	0.7350	$2.41
5	Operating Costs	$3.38	0.6806	$2.30
6	Operating Costs	$3.48	0.6302	$2.19
7	Operating Costs	$3.58	0.5835	$2.09
8	Operating Costs	$3.69	0.5403	$1.99
9	Operating Costs	$3.80	0.5002	$1.90
10	Operating Costs	$3.91	0.4632	$1.81
11	Operating Costs	$4.03	0.4289	$1.73
12	Operating Costs	$4.15	0.3971	$1.65
13	Operating Costs	$4.28	0.3677	$1.57
14	Operating Costs	$4.41	0.3405	$1.50
15	Operating Costs	$4.54	0.3152	$1.43
16	Operating Costs	$4.67	0.2919	$1.36
17	Operating Costs	$4.81	0.2703	$1.30
18	Operating Costs	$4.96	0.2502	$1.24
19	Operating Costs	$5.11	0.2317	$1.18
20	Operating Costs	$5.26	0.2145	$1.13
21	Operating Costs	$5.42	0.1987	$1.08
22	Operating Costs	$5.58	0.1839	$1.03
23	Operating Costs	$5.75	0.1703	$0.98
24	Operating Costs	$5.92	0.1577	$0.93
25	Operating Costs	$6.10	0.1460	$0.89
25	Maintenance Cost	$210.00	0.1460	$30.66
26	Operating costs	$6.28	0.1352	$0.85
27	Operating costs	$6.47	0.1252	$0.81
28	Operating costs	$6.66	0.1159	$0.77
29	Operating costs	$6.86	0.1073	$0.74
30	Operating costs	$7.07	0.0994	$0.70
31	Operating costs	$7.28	0.0920	$0.67
32	Operating costs	$7.50	0.0852	$0.64
33	Operating costs	$7.73	0.0789	$0.61
34	Operating costs	$7.96	0.0730	$0.58
35	Operating costs	$8.20	0.0676	$0.55
36	Operating costs	$8.44	0.0626	$0.53
37	Operating costs	$8.69	0.0580	$0.50
38	Operating costs	$8.96	0.0537	$0.48
39	Operating costs	$9.22	0.0497	$0.46
40	Operating costs	$9.50	0.0460	$0.44
41	Operating costs	$9.79	0.0426	$0.42
42	Operating costs	$10.08	0.0395	$0.40
43	Operating costs	$10.38	0.0365	$0.38
44	Operating costs	$10.69	0.0338	$0.36
45	Operating costs	$11.01	0.0313	$0.34
46	Operating costs	$11.34	0.0290	$0.33
47	Operating costs	$11.69	0.0269	$0.31
48	Operating costs	$12.04	0.0249	$0.30
49	Operating costs	$12.40	0.0230	$0.29
50	Operating costs	$12.77	0.0213	$0.27
50	Salvage Value	($27.00)	0.0213	($0.58)
	Net cash outflow			$649.48

Net present value is the difference of Sum of Present values of cash inflows and Sum of Present values of cash outflows. If the value is positive then the project may be accepted. While evaluation of two or more alternatives takes place, then the proposal with the higher net present value may be selected since it results in a greater cash inflow over the duration of the project.

In the given scenario, Present values are calculated by calculating the present values of cash inflows in the form of salvage value and cash outflows such as installation cost and operating cost.

In case of the suspension bridge, Installation Cost is $575 Million, Land Cost is $120 Million and Annual Operating costs are $2 Million with an increase of 4% each year. There is a maintenance cost of $180 Million in Year 25.Salvage value in year 50 is $30 Million.

In case of the cantilever bridge, Installation Cost is $470 Million, Land Cost is $95 Million and Annual Operating costs are $3 Million with an increase of 3% each year. There is a maintenance cost of $210 Million in Year 25. Salvage value in year 50 is $27 Million.

Present value factor is calculated as 1/1.08 ^ N where N is the year of operation of the bridge.

Conclusion:

Hence the bridge to be constructed is the Cantilever bridge, since it results in lower overall cash outflow over the period of 50 years.