Question

Two sites are currently under consideration for a bridge to cross the Nile River at Elmansoura city, Dakahlia. The first alternative, Suspension bridge, would have a first cost of L.E 30 million with annual maintenance costs of L.E. 15,000. In addition, the concrete deck would have to be resurfaced every 10 years at a cost of L.E. 50,000. The second alternative, Truss Bridge and approach roads, are expected to cost L.E 12 million and have annual maintenance costs of L.E. 8,000. The bridge would have to be painted every 3 years at a cost of L.E. 10,000. In addition, the bridge would have to be sandblasted every 10 years at a cost of L.E. 45,000. The Cost of purchasing right-way is expected to be L.E 800,000 for the suspension bridge and L.E. 10.3 million for the truss bridge. Compare the alternatives on the basis of their capitalized cost if the interest rate is 6 % per year.

Answer 1

Capitalized cost of suspension bridge = 30000000 + 15000 / 0.06 + 50000*(A/F,6%,10) / 0.06 + 800000

= 30000000 + 15000 / 0.06 + 50000*0.075868 / 0.06 + 800000

= 31113223.33 ~ 31,113,223

Capitalized cost of truss bridge = 12000000 + 8000 / 0.06 + 10000*(A/F,6%,3) / 0.06 + 45000*(A/F,6%,10) / 0.06 + 10300000

= 12000000 + 8000 / 0.06 + 10000*0.314110 / 0.06 + 45000*0.075868 / 0.06 + 10300000

= 22,542,586

As capitalized cost of truss bridge is less, it should be selected