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

Question

The city bridge inspection team had 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 had 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

Assumptions cash flows are assumed to be constant every year as the no. of cars per year are given to be constant oak street bridge 7 River street bridge 7 Yr Cash flow Dcf @ 7% Yr Cash flow Dcf @ 7% 0 -19000000 1 -19000000 0 -21500000 1 -21500000 1 2705173 0.934579 2528199.1 1 3061116 0.934579 2860856.075 2 2705173 0.873439 2362802.9 2 3061116 0.873439 2673697.266 3 2705173 0.816298 2208227 3 3061116 0.816298 2498782.492 4 2705173 0.762895 2063763.5 4 3061116 0.762895 2335310.74 5 2705173 0.712986 1928751 5 3061116 0.712986 2182533.402 6 2705173 0.666342 1802571 6 3061116 0.666342 2039750.843 7 2705173 0.62275 1684645.8 7 3061116 0.62275 1906309.199 8 2705173 0.582009 1574435.3 8 3061116 0.582009 1781597.382 9 2705173 0.543934 1471434.9 9 3061116 0.543934 1665044.282 10 2705173 0.508349 1375172.8 10 3061116 0.508349 1556116.152 7.023582 3.1478293 7.023582 -2.167746561 cost per year to be recovered -2705173 cost per year to be recovered -3061116.309 No. of cars running over bridge 14500000 No. of cars running over bridge 16000000 cost per year per car to be recovered 0.1865637 cost per year per car to be recovered 0.19131975 2nd ave bridge Lincon avenue bridge Yr Cash flow Dcf @ 7% Yr Cash flow Dcf @ 7% 0 -20000000 1 -20000000 0 -22000000 1 -22000000 1 2847550 0.934579 2661261.7 1 3132305 0.934579 2927387.85 2 2847550 0.873439 2487160.5 2 3132305 0.873439 2735876.496 3 2847550 0.816298 2324449 3 3132305 0.816298 2556893.921 4 2847550 0.762895 2172382.3 4 3132305 0.762895 2389620.487 5 2847550 0.712986 2030263.8 5 3132305 0.712986 2233290.175 6 2847550 0.666342 1897442.8 6 3132305 0.666342 2087187.079 7 2847550 0.62275 1773311 7 3132305 0.62275 1950642.13 8 2847550 0.582009 1657300 8 3132305 0.582009 1823030.028 9 2847550 0.543934 1548878.5 9 3132305 0.543934 1703766.382 10 2847550 0.508349 1447550 10 3132305 0.508349 1592305.03 7.023582 -0.383117 7.023582 -0.421429111 cost per year to be recovered -2847550 cost per year to be recovered -3132305.06 No. of cars running over bridge 14000000 No. of cars running over bridge 16500000 cost per year per car to be recovered 0.2033964 cost per year per car to be recovered 0.189836667 As the cost is minimum under oak street bridge to be recovered from each car per year i.e 0.1865 it is better to go for this project

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