8. A new 2-lane STREET is needed in a part of town that is growing. At some poin

Question

8. A new 2-lane STREET is needed in a part of town that is growing. At some point the road will need 4 lanes to handle anticipated traffic. If the citys optimistic estimate of growth is used, the expansion will be needed in 4 years. For the most likely and pessimistic estimates, the expansion will be needed in 8 and 15 years, respectively. The expansion will cost $4.2 million. Use interest rate of 8%.

a. What is the PW for each scenario, and what is the range of values?

b. Find the mean value of the expansions.

SHOW STEP BY STEP AND ALL FORMULAS please do not use excell

Explanation / Answer

interest rate = 8%

time for optimistic estimate = 4 years

time of mostlikely estimate = 8 years

time for pessimistic estimate = 15 years

Present worth is Optimistic estimate = 4.2/1.08^4 = $3.0871253 million

Present worth of most likely estimate = 4.2/1.08^8 = $2.269129 million

Present worth of pessimistic estimate = 4.2/1.08^15 = $1.32401516 million

mean value = (3.0871253+2.269129+1.32401516)/3 = $2.22675 million

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