Eyup Municipality is considering opening a new light metro rail line. The new li
ID: 1131262 • Letter: E
Question
Eyup Municipality is considering opening a new light metro rail line. The new line can be constructed at a cost of $9 M, and will have an estimated annual maintenance cost of $75,000. The annual savings from reduced accidents will sum up to $123,000. Besides, the municipality estimates the annual convenience benefits for residents on the route to reach $700,000. Yet, the annual disbenefit caused by the increase in travelling times by car is estimated to be $144,000 annualy. Find the B–C ratio, using modified version and treating disbenefits as costs, using a MARR of 7% and a study period of 13 years, to determine whether the new line should be constructed.
PLEASE SOLVE CAREFULLY!
Explanation / Answer
PW of Annual Benefits= PW of Savings through avoided accidents+ PW of Annual convenience benefit
PW of Annual Costs = PW of disbenefits+PW of Maintainable cost + Initial cost
Therefore PW of benefits can be calculated as below
=(700000+123000)(1/1.07+1/1.07^2...+1/1.07^13)=823000×8.35= 6,873,347
PW of Costs =219000(8.35)=1,830,325
B/C ratio is =PW of benefits/ PW of Costs
=6873347/(9000000+1830325)=0.64
As we found B/C ratio is less than 1 it should be rejected
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