16-27 A 50-meter tunnel must be constructed for a new city aqueduct. One alternative is to build afull-capacity tunnel now for $500,000. The other alternative is to build a half-capacity tunnelnow for $300,000, and then build a second parallel half-capacity tunnel 20 years hence for$300,000. Each tunnel must be relined every ten years, at a cost of $20,000 for the full-capacitytunnel and $16,000 each for the half-capacity tunnels.Determine whether the full-capacity tunnel or the half capacity tunnel should be constructednow. Solve the problem using conventional benefit-cost ratio analysis, a 4% interest rate, andan 50-year analysis period. No reline will be required at year 50.

Full-capacity tunnel Alternative- 1: Computation of total as on today Cost of the project as on…

now for $300,000, and then build a second parallel half-capacity tu $300,000. Each tunnel must be relined every ten years, at a cost of tunnel and $16,000 each for the half-capacity tunnels. Determine whether the full-capacity tunnel or the half capacity tun now. Solve the problem using conventional benefit-cost ratio analy an 50-year analysis period. No reline will be required at year 50.

now for $300,000, and then build a second parallel half-capacity tu $300,000. Each tunnel must be relined every ten years, at a cost of tunnel and $16,000 each for the half-capacity tunnels. Determine whether the full-capacity tunnel or the half capacity tun now. Solve the problem using conventional benefit-cost ratio analy an 50-year analysis period. No reline will be required at year 50.

ENGR.ECONOMIC ANALYSIS

14th Edition

ISBN:9780190931919

Author:NEWNAN

Publisher:NEWNAN

Chapter1: Making Economics Decisions

Section: Chapter Questions

Problem 1QTC

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