6 5 DC wants to build a new bypass between two major roads that will cut travel time for commuters. The road will cost $20,000,000 and save 50,000 people $100/year on gas. The road will need to be resurfaced every year at a cost of $500,000. The road is to be used for 20 years. The cost of money is 8. a) Determine B/C ratio b) Should DC buid the road? Explain. Initial Cost Resurfacing (every year) Avg # of road users / year Avg time savings value / road user $20,000,000 $500,000 50,000 $100

6 5 DC wants to build a new bypass between two major roads that will cut travel time for commuters. The road will cost $20,000,000 and save 50,000 people $100/year on gas. The road will need to be resurfaced every year at a cost of $500,000. The road is to be used for 20 years. The cost of money is 8. a) Determine B/C ratio b) Should DC buid the road? Explain. Initial Cost Resurfacing (every year) Avg # of road users / year Avg time savings value / road user $20,000,000 $500,000 50,000 $100

Cornerstones of Cost Management (Cornerstones Series)

4th Edition

ISBN:9781305970663

Author:Don R. Hansen, Maryanne M. Mowen

Publisher:Don R. Hansen, Maryanne M. Mowen

Chapter19: Capital Investment

Section: Chapter Questions

Problem 28P: Friedman Company is considering installing a new IT system. The cost of the new system is estimated...

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Tower City aims to construct a new bypass between two main routes that will reduce commuter travel time. The route will cost $15 million and will save 17,500 people $100 per year in petrol costs. The path will be paved. Every year, at a cost of $7,500, the surface must be refinished. The road will be in use for the next 20 years. Determine if Tower City should construct the road. Money has an interest rate of 15%(ɛ = interest rate) . a. The Net Present Worth of this project = $ Blank 1 b. The IRR of this project = Blank 2% c. The ERR of this project = Blank 3% d. Should the city build the bypass road? (type only Yes or No) = Blank 4 e. The simple payback period is on Year Blank 5 f. The discounted payback period is on Year Blank 6
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