Question

a toll road is being considered as a replacement for the current road linking purdue and chicago. investment costs of the structure are estimated to be $21,000,000, and $520,000 per year in operating and maintenance costs are anticipated. in addition, the road must be resurfaced every fifth year of its 30-year projected life at a cost of $1,300,000 per occurrence (no resurfacing cost in year 30 and the initial surfacing of the road is included in the $21,000,000). revenues generated from the toll are anticipated to be $2,500,000. assuming zero market (salvage) value for the bridge at the end of 30 years and a marr of 12% per year, what is the conventional b-c ratio for this project (please keep two digits after the decimal point)?

Answer 1

To find the conventional benefit-cost ratio for the toll road project, the present value of revenues is divided by the present value of costs using the provided investment, operating, and maintenance figures, factoring in the resurfacing costs and using the 12% MARR as the discount rate.

Step-by-step explanation:

Calculating the conventional benefit-cost (B-C) ratio for a toll road project involves determining the present value of benefits and dividing them by the present value of costs. In this case, we use the Minimum Acceptable Rate of Return (MARR) of 12% as the discount rate to calculate the present value of both costs and revenues over a 30-year period.

The initial investment is $21,000,000, and there is an annual operating and maintenance cost of $520,000. Additionally, the road requires resurfacing every fifth year, except for year 30, at a cost of $1,300,000. With a revenue of $2,500,000 per year, we need to consider resurfacing costs that occur at years 5, 10, 15, 20, and 25. The B-C ratio can be found using the formula for present value of annuities and adjusting for the additional resurfacing costs at their respective intervals.