Question

In order to improve evacuation routes out of New Orleans in the event of another major disaster such as Hurricane Katrina, the Louisiana Department of Transportation (L-DoT) is planning to construct an additional bridge across the Mississippi River. The department uses an interest rate of 8% and plans a 50-year life for either bridge. Which design has the better present worth?

All costs in $M Bridge M Bridge L

Land acquisition $220 $195

Annual O & M 2 3

Annual increase 0.04 0.03

Major Maintenance (Year 25) 185 210

Salvage Cost 30 27

Initial Construction $585 $470

Answer 1

Given Data

Particulars	Bridge M (in Millions of $)	Bridge L (in Millions of $)
Land Acquisition	220	195
Annual O & M	2	3
Annual increase in O & M	0.04	0.03
Major maintenance (Year 25)	185	210
Salvage cost	30	27
Initial construction	585	470
Interest rate	8%

Bridge M

Present worth =220 + 585 + [2 + 0.04*2(A/G,8,50)](P/A,8,50) + 185(P/F,8,25) + 30(P/F,8,50)

Using DCIF tables

Present worth =220 + 585 + (2 + (0.04*2*11.411))(12.233) + 185(0.1460) + 30(0.0213)

Present worth = $868.28

Bridge L

Present worth =195 + 470 + [3 + 0.03*3(A/G,8,50)](P/A,8,50) + 210(P/F,8,25) + 27(P/F,8,50)

Using DCIF tables

Present worth =195 + 470 + (2 + (0.03*3*11.411))(12.233) + 210(0.1460) + 27(0.0213)

Present worth = $733.26

Since the Present worth of cost for Bridge L is lessor, the same has highest present worth.