Question

Imagine that you are the governor of Virginia and need to decide if you should support...

Imagine that you are the governor of Virginia and need to decide if you should support the “Super Bowl” highway and bridge construction project. The Super Bowl is estimated to take 5 years to complete. The project will require $150 million in construction materials per year and $75 million in labor costs per year in the first 2 years (i.e., 1st and 2nd years), and $130 million in construction materials per year and $90 million in labor costs per year in the next 3 years (i.e., 3rd, 4th, and 5th years). In addition, the construction will disrupt transportation within the city for the duration of the construction. The transportation disruption lengthens transport times for 80,000 workers by 25 hours per year. All workers are paid $20 per hour. The Super Bowl, when finished, will ease transportation within the city. Each of the 80,000 workers will have their transport time reduced by 60 hours per year as compared to the preconstruction transport time. In addition, part of the Super Bowl project involves converting the space formerly taken up by an elevated highway into a large park. The State of Virginia has determined that each worker will value the park at $50 per year. We will assume that no one else will use the park. We also assume the government has a 3% discount rate and that the workers live forever. The benefits to the Super Bowl begin in year 6, assuming the project begins in year 1 (i.e., the project runs for 5 years, from t=1 to t=5). Calculate the total cost, total benefit, and net befit (use the table on the next page)

a) Calculate the total cost, total benefit, and net benefit.

b) You also need to add a $5 million cost annually to maintain the “Super Bowl” highway in year 6 and after. Revise the total cost, total benefit, and net benefit.

Business   Economics   
0 0
Add a commentTranscribed image text
Next >

Homework Answers

Answer #1

a)

Given discount rate i=3%

so PV=FV/(1+i)^(t-1)

t=year

Total Cost =$1236.30 mn

Total benefits =$2875.36 mn

Net benefit=2875.36-1236.30=$1639.06 mn

B)

After 6 years we will have $5 mn maintenance cost for life time so

t=6 Present value of maintenance cost= Maintenance cost/discount rate=5/3%=$166.67 mn

t=1 Present value of maintenance cost=FV/(1+i)^5=166.67/(1.03)^5=$143.77 mn

Revised Total cost=1236.30+143.77=$1380.06

Total benefits =$2875.36 mn

Revised Net benefit=2875.36-1380.06=$1495.294 mn

0 0
Know the answer?
Your Answer:

Post as a guest

Your Name:

What's your source?

Earn Coins

Coins can be redeemed for fabulous gifts.

Log In

Sign Up

Not the answer you're looking for?
Ask your own homework help question
Similar Questions
Suppose that a major city’s main thoroughfare, which is also an interstate highway, will be completely...
Suppose that a major city’s main thoroughfare, which is also an interstate highway, will be completely closed to traffic for two years, from January 2014 to December 2015, for reconstruction at a cost of $535 million. If the construction company were to keep the highway open for traffic during construction, the highway reconstruction project would take much longer and be more expensive. Suppose that construction would take four years if the highway were kept open, at a total cost of...
**Show work in Excel with formula** A proposed bridge on the interstate highway system is being...
**Show work in Excel with formula** A proposed bridge on the interstate highway system is being considered at the cost of 10 million dollars. It is expected the bridge will have a life of 30 years. Construction costs will be paid by government agencies. Operation and maintenance costs are estimated to be 180,000 per year. Benefits to the public are estimated to be 900,000 per year. The building of the bridge will result in an estimated cost of 250,000 per...
On December 31 of the current year, State Construction Inc. signs a contract with the state...
On December 31 of the current year, State Construction Inc. signs a contract with the state of West Virginia Department of Transportation to manufacture a bridge over the New River. State Construction anticipates the construction will take three years. The company’s accountants provide the following contract details relating to the project: Contract price $624 million Estimated construction costs $480 million Estimated total profit $144 million During the three-year construction period, State Construction incurred costs as follows: Year 1 $48 million...
The City of Baconsville engaged in the following transactions. Assume that the city maintains its books...
The City of Baconsville engaged in the following transactions. Assume that the city maintains its books and records in a manner that facilitates the preparation of government fund financial statements. Required: Prepare the appropriate journal entries in the general fund. If appropriate, write “No entry required.” The city purchased for cash three dump trucks for $80,000 each. The city sold for $4,000 a police car that had been purchased four years ago at a cost of $30,000. At the time...
The City of Baconsville engaged in the following transactions. Assume that the city maintains its books...
The City of Baconsville engaged in the following transactions. Assume that the city maintains its books and records in a manner that facilitates the preparation of the government-wide financial statements. Required: Prepare the appropriate journal entries. If appropriate, write “No entry required.” The city purchased for cash three dump trucks for $80,000 each. The city sold for $4,000, a police car that had been purchased four years ago at a cost of $30,000. At the time of acquisition, the city...
Mass Waste Disposal Inc. is considering the construction of a facility at a cost of $20...
Mass Waste Disposal Inc. is considering the construction of a facility at a cost of $20 million. The project will produce positive cash flows of $7 million per year for the next 4 years but the 5th and final year will have a net negative cash flow of $5 million. If the reinvestment rate is 10% and the cost of capital is 9%, the MIRR of this project is ________ and the project should be ________. (accepted/rejected)
A project for erection a park with the following expected cost and benefits : -First cost...
A project for erection a park with the following expected cost and benefits : -First cost of 5250000 L.E -Annual operating cost of 1800000 L.E for the first year ; then it increased by 300000 L.E per year up to year 5 , and after that it remain constant at 3000000 L.E /year . -The expected costs for improving the park will be 90000 L.E / year for the first five years . -The expected profits will be 1650000 L.E...
1. A city with 4% unemployment and no inflation is considering building a new stadium for...
1. A city with 4% unemployment and no inflation is considering building a new stadium for its professional football team. The team currently plays in an old stadium owned by the city. If a new stadium were to be built, it would cost city $400M (M for million) to demolish the old one and build the new one. The new stadium would be expected to last for 40 years and the city would finance the costs of the project by...
1. A city with 4% unemployment and no inflation is considering building a new stadium for...
1. A city with 4% unemployment and no inflation is considering building a new stadium for its professional football team. The team currently plays in an old stadium owned by the city. If a new stadium were to be built, it would cost city $400M (M for million) to demolish the old one and build the new one. The new stadium would be expected to last for 40 years and the city would finance the costs of the project by...
Wollongong City is considering the construction of a new waste treatment plant. Land acquisition will cost...
Wollongong City is considering the construction of a new waste treatment plant. Land acquisition will cost $120,000. The construction works required for the plant will cost $600,000. Environmental inspection and other expenses will cost $60,000. The plant will be built in Year 0 and will become fully operational in Year 1 for six years (i.e. until Year 6). The annual operating cost for the plant is estimated to be fixed at $120,000 during its anticipated 6-year service life. This waste...
ADVERTISEMENT
Need Online Homework Help?

Get Answers For Free
Most questions answered within 1 hours.

Ask a Question
ADVERTISEMENT