A 50-meter tunnel must be constructed for a new city aqueduct. One alternative is to build a full- capacity tunnel now for $500,000. The other alternative is to build a half-capacity tunnel now for $300,000 and then to build a second parallel half- capacity tunnel 20 years hence for $300,000. The cost to repair the tunnel lining every 10 years is $20,000 for the full-capacity tunnel and $16,000 for each half-capacity tunnel. Determine whether the full- capacity tunnel or the half-capacity tunnel should be constructed now. Solve the problem by the conventional benefit-cost ratio analysis, using 4% interest rate and a 50-year analysis period. There will be no tunnel lining repair at the end of the 50 years.

A 50-meter tunnel must be constructed for a new city aqueduct. One alternative is to build a full- capacity tunnel now for $500,000. The other alternative is to build a half-capacity tunnel now for $300,000 and then to build a second parallel half- capacity tunnel 20 years hence for $300,000. The cost to repair the tunnel lining every 10 years is $20,000 for the full-capacity tunnel and $16,000 for each half-capacity tunnel. Determine whether the full- capacity tunnel or the half-capacity tunnel should be constructed now. Solve the problem by the conventional benefit-cost ratio analysis, using 4% interest rate and a 50-year analysis period. There will be no tunnel lining repair at the end of the 50 years.

ENGR.ECONOMIC ANALYSIS

14th Edition

ISBN:9780190931919

Author:NEWNAN

Publisher:NEWNAN

Chapter1: Making Economics Decisions

Section: Chapter Questions

Problem 1QTC

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