A DOT is performing a benefit-cost analysis of a new highway using an analysis p

Question

A DOT is performing a benefit-cost analysis of a new highway using an analysis period of 40 years as part the required environmental impact assessment of the project. The section of highway is estimated to have a construction cost $230 million dollars. The public benefit in reduced travel time and economic development around the highway is estimated to be $12 million per year for the first 5 years, then decrease by 3% per year for the remainder of the 40 year analysis period as congestion grows and economic development slows. The public disbenefit is estimated to be $1.1 million dollars in year 0 due to additional congestion and pollution during construction, then average $110,000 per year over the 40-year project life in environmental costs due to increased runoff and vehicle emissions. Using an interest rate of 4%, determine the benefit-cost ratio for this project using public/government version of the B/C ratio. Express your answer to two decimal places.

Explanation / Answer

Total costs=230mn+1.1mn+110,000*(P/F,4%,40)

P/A(i,n)=[(1+i)^n-1]/(i*(1+i)^n)

Total costs=$233,277,205.13

Benefit=12mn(P/A,4%,5)+[12mn*0.97/(1+4%)^5]+[12mn*0.97^2/(1+4%)^6]......+[12mn*0.97^35/(1+4%)^40]

=$178,169,580.71/233,277,205.13=0.763

B/C=178,169,580.71/233,277,205.13

Related Questions

Navigate

• Browse (All)
• Browse A
• Subjects

Integrity-first tutoring: explanations and feedback only — we do not complete graded work. Learn more.