4. A highway needs to be reconstructed. Two alternatives are being considered, a

Question

4. A highway needs to be reconstructed. Two alternatives are being considered, a concrete pavement and an asphalt pavement. Both options have a service life of 45 years. The treatments expected during the life of each pavement are shown in the table below. Assume an interest of 4%. Which is the most cost-effective pavement option, based on present worth? Initial Construction MaintenanceResurfacin $7,000,000$18,000 Alternative Annual MaintenanceRehabilitation & Overla A-Concrete Year 15 Year 30 B -Asphalt Year 8 Year 15 Year 23 Year 30 Year 38 $500,000 $900,000 $4,200,000$30,000 $300,000 $300,000 $300,000 $400,000 $750,000

Explanation / Answer

Time = 45 years

Interest rate = 4%

For A-Concrete:

Present worth of the alternative = Present value of initial cost + Present value of annual maintenance cost + Present value of maintenance surfacing + Present value of rehabilitation and overlay cost

Present worth of the alternative = 7000000 + 18000*(1-1/(1+4%)^45)/.04 + 0 + 500000/1.04^15 + 900000/1.04^30

Present worth of the alternative = $7928080

For B-Asphalt:

Present worth of the alternative = Present value of initial cost + Present value of annual maintenance cost + Present value of maintenance surfacing + Present value of rehabilitation and overlay cost

Present worth of the alternative = 4200000 + 30000*(1-1/(1+4%)^45)/.04 + 300000/1.04^8 + 300000/1.04^23 + 300000/1.04^38 + 400000/1.04^15 + 750000/1.04^30

Present worth of the alternative = $5683457

Since, the present worth of all the cost is lower in case of alternative B Asphalt, then this alternative should be selected. Here, alternative B Asphalt is the most cost effective payment option.

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