The Tennessee Department of Highways is trying to decide whether it should “hot-patch” a short stretch of an existing highway or resurface it. If the hotpatch method is chosen, approximately 500 cubic meters of material would be required at a cost of $800/cubic meter (in place). If hot-patched, the shoulders will have to be improved at the same time at a cost of $24,000. The shoulders must be maintained at a cost of $3000 every 2 years. The annual cost of routine maintenance on the patched road is estimated to be $6000. Alternatively, the state can resurface the road at a cost of $500,000. If maintained properly, at a cost of $2000 per year beginning in the second year, the surface will last for 10 years. The shoulders would require reworking at the end of the fifth year at a cost of $15,000. Regardless of the method selected, the road will be completely rebuilt in 10 years. At an interest rate of 9%, which alternative should be chosen?

An analysis of accidents in a rural state indicates that widening a highway from 30 ft to 40 ft will decrease the annual accident rate from 1,250 to 710 per million vehicle-miles. Calculate the average daily number of vehicles that should use the highway to justify widening on the basis of the following estimates: (i) the average loss per accident is $1,200; (ii) the cost of widening is $117,000 per mile; (iii) the useful life of the widened road is 25 years; (iv) annual maintenance costs are 3% of the capital investment; and (v) MARR is 12% per year. (a) 78 (b) 63 (c) 34 (d) 59 (e) 27. A super market chain buys loaves of bread from its supplier at $0.50 per loaf. The chain is considering two options to bake its own bread.

A toll bridge across the Mississippi River is being considered as a replacement for the current 1-40 bridge linking Tennessee to Arkansas. Because this bridge, if approved, will become a part of the U.S. Interstate Highway system, the B-C ratio method must be applied in the evaluation. Investment costs of the structure are estimated to be $17,500,000, and $334,000 per year in operating and maintenance costs are anticipated. In addition, the bridge must be resurfaced every fifth year of its 25-year projected life at a cost of $1,200,000 per occurrence (no resurfacing cost in year 25). Revenues generated from the toll are anticipated to be $2,500,000 in its first year of operation, with a projected annual rate of increase of 1.75% per year due to the anticipated annual increase in traffic across the bridge. Assuming zero market (salvage) value for the bridge at the end of 25 years and a MARR of 11% per year, should the toll bridge be constructed? Also, assume that the initial surfacing…

A toll bridge across the Mississippi River is being considered as a replacement for the current 1-40 bridge linking Tennessee to Arkansas. Because this bridge, if approved, will become a part of the U.S. Interstate Highway system, the B-C ratio method must be applied in the evaluation. Investment costs of the structure are estimated to be $19,000,000, and $332,000 per year in operating and maintenance costs are anticipated. In addition, the bridge must be resurfaced every fifth year of its 30-year projected life at a cost of $1,300,000 per occurrence (no resurfacing cost in year 30). Revenues generated from the toll are anticipated to be $2,400,000 in its first year of operation, with a projected annual rate of increase of 2% per year due to the anticipated annual increase in traffic across the bridge. Assuming zero market (salvage) value for the bridge at the end of 30 years and a MARR of 12% per year, should the toll bridge be constructed? Also, assume that the initial surfacing of…

Larry’s Lawn Service (LLS) currently offers a single lawn maintenance service that includes cutting grass, trimming shrubs, and removing leafs.  LLS is considering offering an additional lawn care service which will include fertilizing and pest control. LLS hired you to perform a study to determine whether or not LLS should in fact go ahead with the new service.  Your fee to LLS is $10,000 which is due whether LLS makes the investment in the new project or not.  Additionally, if this new lawn care service is implemented, LLS believes that it will actually increase business for its original lawn maintenance service.  You have estimated the dollar value of this benefit to the existing lawn maintenance service to be $20,000/year 33.) For LLS, the $10,000 fee is a:   Question 33 options:   Incremental cash flow   Externality   Sunk cost   Opportunity cost

Hagar Industrial Systems Company (HISC) is trying to decide between two different conveyor belt systems. System A costs $290,000; has a four-year life and requires $89,000 in pretax annual operating costs. System B costs $ 410,000; has a six-year life and required requires $79,00 in pretax operating costs. Both systems are to be depreciated straight-line to zero over their lives and will have zero salvage value. Whichever system is chosen, it will not be replaced when it wears out. If the tax rate is 34 percent and the discount rate is 7.5 percent, which system should the firm choose?

Rust Industrial Systems Company is trying to decide between two different conveyor belt systems. System A costs $350,000, has a 4-year life, and requires $141,000 in pretax annual operating costs. System B costs $430,000, has a 6-year life, and requires $135,000 in pretax annual operating costs. Both systems are to be depreciated straight- line to zero over their lives and will have zero salvage value. Whichever project is chosen, it will not be replaced when it wears out. The tax rate is 22 percent and the discount rate is 8 percent. Calculate the NPV for both conveyor belt systems. (A negative answer should be indicated by a minus sign. Do not round intermediate calculations and round your answers to 2 decimal places, e.g., 32.16.) System A System B Which conveyor belt system should the firm choose? ○ System B O System A

A highway is to be built connecting Maud and Bowlegs. Route A follows the old road and costs $4 million initially and $210,000/year thereafter. A new route, B, will cost $6 million initially and $180,000/year thereafter. Route C is an enhanced version of Route B with wider lanes, shoulders, and so on. Route C will cost $9 million at first, plus $260,000 per year to maintain. Benefits to the users, considering time, operation, and safety, are $500,000 per year for A, $850,000 per year for B, and $1,000,000 per year for C. Using a 7% interest rate, a 15-year study period, and a salvage value of 50% of first cost, determine which road should be constructed.

The city of Bloomington is deciding if they are going to be able to justify an additional street light. The cost of the light to install is $14,000. City officials believe it will reduce the death rate at that intersection from 1.0% to 0.6%. Our guideline for valuing human life is $8M per person. What is the net of this cost benefit proposal? A. 32,000 B. 18,000 C. (18,000) D. (32,000)

The cost associated with maintaining rural highways follows a predictable pattern. There are usually no costs for the first 3 years, but thereafter maintenance is required for restriping, weed control, light replacement, shoulder repairs, etc. For one section of state highway S102, these costs are projected to be $6000 in year 3, $7000 in year 4, and amounts increasing by $1000 per year through the highway’s expected 30-year life. (a) Assuming it is replaced with a similar roadway, determine the perpetual equivalent annual cost (years 1 to ∞) at an interest rate of 8% per year. (b) Verify your factor-based answer on a spreadsheet in the most efficient way you know.