Three mutually exclusive highway bridge projects are under consideration by a go

ID: 2735317 • Letter: T

Question

Three mutually exclusive highway bridge projects are under consideration by a governmental agency. Which of three bridges, if any, should be recommended to the governmental agency? Use incremental B/C analysis, an interest rate of 10% per year, compounded annually, and a life of 20 years. Compare alternative on the basis of annual worth (AW) and state which project is finally selected. Assuming that you are an engineer who is performing the above analysis for a company whose client is the governmental agency, how could the result of your analysis impact public policy making or public planning? Assume that one of the above projects was determined to be economically justified, was selected, and will soon be recommended to the governmental agency. However, upon further study, you discovered that there is a disbenefit that has not been included in the analysis. The disbenefit involves the relocation of a bus stop used by school children, and as a result the children will have to walk further to get to the bus stop. Is this acceptable? Please explain why or why not.

Explanation / Answer

Answer:

1a.

Sr. No.

Particulars

Project 1

Project 2

Project 3

Initial Investment

950,000,000

990,000,000

825,000,000

Cash Inflow ( Annual Benefits – Annual Disbenefit – Annual o & M Cost)

109,250,000

(110,000,000 – 350,000 – 400,000)

119,150,000

(120,000,000 – 500,000 – 350,000)

97,435,000

(99,000,000 – 850,000 – 715,000)

Discounted Rate @ 10% for 20 years

8.513

Discounted Cash Inflow (2 * 3)

930,045,250

1,014,323,950

829,464,155

Net Present Value (1-4)

19,954,750

(-24,323,950)

(-4,464,155)

Hence, Project 1 should be selected.

1b.

This will have a major impact on public policy making.

The annual worth will be the cost to the government. This cost will be added to the government costs for that year and based on this cost, the public policy making or public planning will be made.

1c.

This decision will depend on the current government and will differ from the situation to situation as per the government policies.

According to the current government policy, this will definitely impact the decision as to whether or not to select the project.

This is not acceptable as the relocation of the bus stop will cost a lot to the government and also it will be a discomfort for the children.

However, the government after proper negotiations with the parent s and the school may change this decision.