The Department of Transportation is studying the economic feasibility of a propo

Question

The Department of Transportation is studying the economic feasibility of a proposed roadway intersection improvement. A municipal bond will be issued at 5.99% to finance the project. Project benefits are estimated at $0.005/vehicle. The demand for the intersection is currently at 100,000 veh/day and is expected to increase by 7% per year for the next 10 years. Assuming that traffic increases occur at the end of each year, what is the present worth of the benefits of the project?

Assuming the social discount rate is 7%, what is the present worth of the maximum expenditures (i.e., capital costs, operations & maintenance) that the agency should be prepared to make on this project?

Explanation / Answer

Year no of increased vehicle per year rate no of days in a year total benefit present value @7% present value of benefits 1 107000 0.005 365 195275 0.934579 182500 2 114490 0.005 365 208944.25 0.873439 182500 3 122504.3 0.005 365 223570.3475 0.816298 182500 4 131079.601 0.005 365 239220.2718 0.762895 182500 5 140255.1731 0.005 365 255965.6909 0.712986 182500 6 150073.0352 0.005 365 273883.2892 0.666342 182500 7 160578.1476 0.005 365 293055.1195 0.62275 182500 8 171818.618 0.005 365 313568.9778 0.582009 182500 9 183845.9212 0.005 365 335518.8063 0.543934 182500 10 196715.1357 0.005 365 359005.1227 0.508349 182500 Sum of thepresent value 1825000

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