Friday, April 20, 2012

Analysis of Public Projects

Engineering Economics Revision Article Series
Benefit cost comparisons
Cost-effectiveness analysis
Illustrative Problem

The Tennessee department of Transportation (TDOT) is considering building its first tolledbypass . around the town of Greenfield, Tennessee. The initial cost of the bypass is estimated to be $5.7 million. The installation of the tollbooth along the bypass is estimated to be about $1.3 million. The annual maintenance cost of the bypass is to be $85,000 each year while the annual maintenance cost of the tollbooth is to be $65,000 each year. Due to the construction of the bypass, Greenfield is expected to receive estimated tax savings of $225,000 per year. In addition, TDOT has projected savings of $100,000 each year. Once the tollbooth is constructed, each car that passes through the toll is expected to pay a fare of $0.90. The city estimates that there will be a total of 500,000 cars using the bypass each year. Other relevant data is listed below.


Resurfacing cost (every 7 years) 4% of bypass initial cost

Shoulder grading/rework 90% of resurfacing cost

If the state uses an interest rate of 7%, should the .toll-bypass. be constructed? What is the project.s total yearly worth? Assume perpetual life.

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