2023W2 Assignment 5 - for release

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University of British Columbia *

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481

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Economics

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Apr 3, 2024

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Uploaded by ChiefLobster4245

Assignment 5 EECE/CPEN 481 Instructor: Jeff Carmichael Point values for the problems are listed below. 1. Problem 1 2. Problem 2 (2 points) 3. Problem 3 (2 points) 4. Problem 4 Solutions given in blue type.

Assignment 5 Solutions 1. Problem 1 A highway bypass will completely circle the city. (a) Name at least three benefits and three costs associated with the bypass. (b) What stakeholder viewpoints will need to be considered? (c) Discusss potential data sources and methods for estimating each of the benefits and costs. 2. Problem 2 Brisbane and Johnsonburg are two towns separated by the Wind River. Traffic between them crosses the river by a ferry run by the Johnsonburg Ferry Company, which charges a toll. The two towns are considering building a bridge somewhat upstream from the ferry crossing. There would be no toll on the bridge. Travel time between the towns would be about the same with the bridge as with the ferry, because of the bridge’s upstream location. The following information is available concerning the crossing: Ferry crossings per year 60,000 Average cost of providing ferry trip ($ / crossing) $1 Ferry fare ($ / crossing) $1.50 Planned bridge toll ($ / crossing) $0 Expected bridge crossings per year 90,000 EAC of bridge ($/year) $85,000 Note: all data are on an annual basis. The cost of the bridge is given as the equivalent annual cost of capital and operating costs. We assume all bridge costs are independent of use – that is, there are no costs that are due to use of the bridge. The average cost per crossing of the ferry including capital cost and operating and maintenance costs. a. If the bridge were built, what would be the annual benefits to travellers? b. How much would the owners of the Johnsonburg Ferry Company lose if the bridge were built? c. What would be the effect on taxpayers if the bridge were built? (Assume Johnsonburg Ferry pays no taxes.) d. What would be the net social gains or losses if the bridge were build? Take into account the effects on travellers, Johnsonburg Ferry owners, and taxpayers. e. Would the net social gains or losses be improved if there were a toll for crossing the bridge?

3. Problem 3 A city has developed a plan to provide for future municipal water needs. The plan proposes an aqueduct that passes through 200 meters of tunnel in a nearby mountain. Two alternatives are being considered. The first proposes to build a full-capacity tunnel now for $650,000. The second proposes to build a half-capacity tunnel now at a cost of $360,000. This tunnel will meet the needs of the growing population for 20 years. A second half-capacity tunnel will be built 20 years later for the same cost. The maintenance cost of the tunnel lining for the full-capacity tunnel is $37,000 every 10 years, and for each half-capacity tunnel it is $32,000 every 10 years. The friction losses in the half-capacity tunnel will be greater than in the full-capacity tunnel. The estimated additional pumping costs for each of the half-capacity tunnels will be $2,500 a year. Assume an interest rate of 4%, to be used as the discount rate. a. What is the capitalized cost of each option? On this basis, which alternative should be selected? b. Instead of using an infinite analysis, pick an appropriate project life and calculate the net present worth of the two options. Which option would be selected? Round your answers to the nearest dollar. 4. Problem 4 A proposed bridge will cost $4 million to build and $180,000 per year to maintain. The bridge should last 40 years. Time-saving benefits to the driving public are estimated to be $900,000 per year. Damage to adjacent property owners due to ongoing noise is estimated to be worth $250,000 per year. It is uncertain what interest rate should be used to evaluate the project: calculate the break-even annual interest rate that results in a B/C ratio of 1. Round your answer to 1 decimal place (x.x%).

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