S A city council considers to construct a new toll bridge across the river. Investment cost ofthe bridge is estimated to be $7,000,000 with an annual operating and maintenance costsof $130,000 per year. In addition, the bridge must go through a comprehensivemaintenance in every fifth year of its 30-year expected life at a cost of $500,000 peroccurrence (no cost in year 30). It is expected 200,000 vehicles per year to cross thebridge. The city plans to set the toll-fee as $5 in its first year of operation, and increases itby $0.25 every year. Assume that market value for the bridge at the end of 30 years is zeroand a MARR is 10% per year.a) Should the toll bridge be constructed? Justify your answer using B-C ratio method andshow all your calculations.b) In order to have a B-C ratio of 1 (Break even point), how many vehicle should across thebridge per year?c) Write down the meaning of B-C ratio calculated in (a) using your own words.

A benefit–cost ratio is an indicator, used in cost–benefit analysis, that attempts to summarize the…

a) Should the toll bridge be constructed? Justify your answer using B-C ratio method and show all your calculations. b) In order to have a B-C ratio of 1 (Break even point), how many vehicle should across the bridge per year? c) Write down the meaning of B-C ratio calculated in (a) using your own words.

a) Should the toll bridge be constructed? Justify your answer using B-C ratio method and show all your calculations. b) In order to have a B-C ratio of 1 (Break even point), how many vehicle should across the bridge per year? c) Write down the meaning of B-C ratio calculated in (a) using your own words.

Managerial Economics: Applications, Strategies and Tactics (MindTap Course List)

14th Edition

ISBN:9781305506381

Author:James R. McGuigan, R. Charles Moyer, Frederick H.deB. Harris

Publisher:James R. McGuigan, R. Charles Moyer, Frederick H.deB. Harris

Chapter17: Long-term Investment Analysis

Section: Chapter Questions

Problem 3E

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Similar questions

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