Engineering Economy Rupees Help Please answer the following questions using the

Question

Engineering Economy Rupees Help

Please answer the following questions using the guidelines provided.

DELIVERABLE: Answers to Case Study Exercises 1

This case study compares benefit/cost analysis and cost-effectiveness analysis on the same information about highway fighting and its role in accident reduction. Poor highway lighting may be one reason that proportionately more traffic accidents occur at night. Traffic accidents are categorized into six types by severity and value. For example, an accident with a fatality is valued at Nothing to transcribe

Explanation / Answer

A)

For alternative W

from the data given in the paragraph it is clear that

the ratio of night to day accident involving property damage for the unlighted freeway section is

199/379= 0.525

and for lighted section is 839/2069 = 0.406

so if there would have been no light in the lighted section then no of accidents would have been 2069*0.525= 1086

but there are actuaally 839 accidents so

Effective measure of number of accidents= 1086-839= 247

now

benefit from saving one accident is 6000

so benefit from saving 247 accident is

247*6000

= 1,482,000

Now

two types of costs are invlved in the process of lighting

i) installation cost and ii). annual power cost

to calculate installation cost you need to know rate of installing per pole and total no of poles installed

since total distance is 87.8 Km and each pole is at distance of 67 m

so total number of pole is 87.8*1000/67

= 1310

and installing each pole cost 3500

so total installation cost

=3500*1310

= 4,585,000

now Annual power cost calaculation

we have to calculate total unit consumed by all the bulbs in all the poles

so total no of bulbs= no of poles* no of bulbes per pole

= 1310*2= 2620 bulbs

power of each bulb is 400W= 0.4KW

so enrgy consumed power*time

here time is no of hours in 1 year

= 2620*0.4 *12*365 kW yearly

so rate = enrgy consumed* rate per unit

= 0.1*2620*0.4*12*365

=459024

Now it is to be kept in mind that this datas are for five year but installation cost is only at the beggining of the year

so

annualised cost C at 6% interest rate is given by

so EAC(Effective annual cosT)

we have to apply the method for this

Calculate v:

v = 0.9434

Calculate Discount Factor for installation cost

a5|0.06 = 4.2121
In Microsoft Excel, this function can be written in a cell as =PV(0.06,5,-1)

Calculate Discounted Investment for installation cost

Discounted Investment for Item 1 = $1,088,530.66

Calculate EAC for installation cost
EAC1 = Discounted Investment + Maintenance Cost
EAC1 = $1,088,479
EAC1 = $1,088,479

thus total annual cost

= $1,088,479+459024

= 1,547,503

so B/C= 1,482,000/1,547,503 =0.96

Since B/C<1 the lightning is not justified as cost is greater than the benefit

For ALTERNATIVE X

since benefit decrease by 40%

original benefit was 1482,000

so now benefit= 0.6*1,482,000

=889,200

Now

two types of costs are invlved in the process of lighting

i) installation cost and ii). annual power cost

to calculate installation cost you need to know rate of installing per pole and total no of poles installed

since total distance is 87.8 Km and each pole is at distance of 134 m

so total number of pole is 87.8*1000/134

= 655

and installing each pole cost 3500

so total installation cost

=3500*655

= 2,292,500

now Annual power cost calaculation

we have to calculate total unit consumed by all the bulbs in all the poles

so total no of bulbs= no of poles* no of bulbes per pole

= 655*2= 1310 bulbs

power of each bulb is 400W= 0.4KW

so enrgy consumed power*time

here time is no of hours in 1 year

= 1310*0.4 *12*365 kW yearly

so rate = energy consumed* rate per unit

= 0.1*13100*0.4*12*365

=229,512

Now it is to be kept in mind that this datas are for five year but installation cost is only at the beggining of the year

so

annualised cost C at 6% interest rate is given by

so EAC(Effective annual cosT)

we have to apply the method for this

Calculate v:

consider item 1 as lighning

so B/C= 889,200/773,777 =1.149

Since B/C>1 the lightning is economically justified as cost is less than the benefit.

For ALTERNATIVE Y

since benefit decrease by 25%

original benefit was 1482,000

so now benefit= 0.75*1,482,000

= 1,111,500

Now

two types of costs are invlved in the process of lighting

i) installation cost and ii). annual power cost

to calculate installation cost you need to know rate of installing per pole and total no of poles installed

since total distance is 87.8 Km and each pole is at distance of 67 m

so total number of pole is 87.8*1000/67

= 1310

and installing each pole cost 2500

so total installation cost

=2500*1310

= 3,275,000

now Annual power cost calaculation

we have to calculate total unit consumed by all the bulbs in all the poles

so total no of bulbs= no of poles* no of bulbes per pole

= 1310*2= 2620 bulbs

power of each bulb is 350W= 0.35KW

so enrgy consumed power*time

here time is no of hours in 1 year

= 2620*0.35 *12*365 kW yearly

so rate = energy consumed* rate per unit

= 0.1*2620*0.35 *12*365

=401,646 peryear

Now it is to be kept in mind that this datas are for five year but installation cost is only at the beggining of the year

so

annualised cost C at 6% interest rate is given by

so EAC(Effective annual cosT)

we have to apply the method for this

Calculate v:

v = 0.9434

Calculate Discount Factor for Item 1:

a5|0.06 = 4.2121
In Microsoft Excel, this function can be written in a cell as =PV(0.06,5,-1)

Calculate Discounted Investment for Item 1:

Discounted Investment for Item 1 = $777,521.90

Calculate EAC for Item 1
EAC1 = Discounted Investment + Maintenance Cost
EAC1 = $777,521.90 + $401.00
EAC1 = $777,923

thus B/C for this is

1,11,500/777,523 = 1.429

so it is economically feasible

as cost is less than the benfit...

Alternative Z

Since accident prevention measure become 124 so total benefit

124*6000

= 744,000

two types of costs are invlved in the process of lighting

i) installation cost and ii). annual power cost

to calculate installation cost you need to know rate of installing per pole and total no of poles installed

since total distance is 87.8 Km and each pole is at distance of 134 m

so total number of pole is 87.8*1000/134

= 655

and installing each pole cost 2500

so total installation cost

=2500*655

= 1,637,500

now Annual power cost calaculation

we have to calculate total unit consumed by all the bulbs in all the poles

so total no of bulbs= no of poles* no of bulbes per pole

= 655*2= 1310 bulbs

power of each bulb is 350W= 0.35KW

so enrgy consumed power*time

here time is no of hours in 1 year

= 1310*0.35 *12*365 kW yearly

so rate = energy consumed* rate per unit

= 0.1*13100*0.35*12*365

=200,823

Now it is to be kept in mind that this datas are for five year but installation cost is only at the beggining of the year

so

annualised cost C at 6% interest rate is given by

so EAC(Effective annual cosT)

we have to apply the method for this

Calculate v:

v = 0.9434

Calculate Discount Factor for Item 1:

a5|0.06 = 4.2121
In Microsoft Excel, this function can be written in a cell as =PV(0.06,5,-1)

Calculate Discounted Investment for Item 1:

Discounted Investment for Item 1 = $388,760.95

Calculate EAC for Item 1
EAC1 = Discounted Investment + Maintenance Cost
EAC1 = $388,760.95 + $200,823.00
EAC1 = $589,584

so

B/C ratio is 744000/589584 = 1.2619

thus B/C>1

so economically it is justified

Q.2

we have

we have taken cost from part A as we have calculated for each part...

E for W is given

for X it is 60% of this =0.6*247=148

for Y it is 75% of this = 0.75*247 =185

for X it is 124 given

so Y has minimum C/E ratio... thus it is best of these alternatives

also all those alternatives whose C/E ratio is less than the base given in question that one is better as compared to W

Q.3).

from the data given in the paragraph it is clear that

the ratio of night to day accident involving property damage for the unlighted freeway section is

199/379= 0.525

and for lighted section is 839/2069 = 0.406

so if there would have been light in the nolight section then no of accidents would have been 379*0.406= 154

but there are actuaally 199 accidents so

Effective measure of number of accidents= 199-154= 45

so prevented damage

= 45*6000

= 270,000

Q.5.

Benefit/Cost (B/C) Analysis is defined as a systematic process for calculating and comparing benefits and costs of a project for two purposes:

Benefit/Cost analysis is also commonly referred to as Cost-Benefit Analysis, CBA, Benefit/Cost Analysis, and BCA. The analysis is identical despite the naming differences. Benefit/costs analysis is one type of economic valuation

v  =   1    1 + Cost of Capital

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