The city bridge inspection team has noted 4 bridges that need replacement. Resou

Question

The city bridge inspection team has noted 4 bridges that need replacement. Resources are available to do one of these. Proposals to repair them have been received as follows.    Also shown are the number of vehicles per year that use each bridge that is an indicator of the size of the problem if the bridge would fail.   Using a 10 year time span and a discount rate (MARR) of 7%, which one should be chosen. Proposal Costs to Replace Cars per year Oak Strret Bridge $19,000,000 14,500,000 2nd Ave. Bridge $20,000,000 14,000,000 River Street Bridge $21,500,000 16,000,000 Lincon Avenue Bridge $22,000,000 16,500,000 The city bridge inspection team has noted 4 bridges that need replacement. Resources are available to do one of these. Proposals to repair them have been received as follows.    Also shown are the number of vehicles per year that use each bridge that is an indicator of the size of the problem if the bridge would fail.   Using a 10 year time span and a discount rate (MARR) of 7%, which one should be chosen. Proposal Costs to Replace Cars per year Oak Strret Bridge $19,000,000 14,500,000 2nd Ave. Bridge $20,000,000 14,000,000 River Street Bridge $21,500,000 16,000,000 Lincon Avenue Bridge $22,000,000 16,500,000

Explanation / Answer

Present value of annual cost= Costs to replace Annuity factor= (1-1/1.07^10)/7%= 7.023581541 Proposal Costs to Replace Cars per year Annuity Factor Annual cost (Cost to replace/annuity fator) Annual cost per car Oak Strret Bridge $19,000,000 14,500,000 7.02358154 $2,705,172.55 $0.1866 2nd Ave. Bridge $20,000,000 14,000,000 7.02358154 $2,847,550.05 $0.2034 River Street Bridge $21,500,000 16,000,000 7.02358154 $3,061,116.31 $0.1913 Lincon Avenue Bridge $22,000,000 16,500,000 7.02358154 $3,132,305.06 $0.1898 Annual cost per car is least for Oak Street Bridge and hence this bridge should be replaced

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