Questtion in the attached Question 1A government is planning to implement a new traffic controland surveillance system. The maintenance cost of the systemis $1,200,000 per year. It is believed that the new system canhelp 3,000 driver saving 8 hours per year. The average wageof the people in this country is $150 per hour. It is expectedthat the system can be used for 5 years, i.e., the first benefitand cost are B, and C, respectively, while the last are B, andC,.(a) What is the value of time saved by the new system peryear?(b) Suppose the market interest rate is 5%. Calculate the netpresent value of this system. Should the system be launched?(c) Suggest two reasons to explain why the market interestrate in part (b) may be too high to evaluate the project. Shouldthe system be launched if the interest rate is adjustedaccording to your suggestions?

Maintenance Cost per year = 1,200,000 Interest rate = 5% N = 5 years

Answered: Question 1 A government is planning to…

EBK CFIN

6th Edition

ISBN:9781337671743

Author:BESLEY

Publisher:BESLEY

Chapter9: Capital Budgeting Techniques

Section: Chapter Questions

Problem 12PROB

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