Ms Project Power

Chapter 5

Problem 1

a. Because of the use of the subway, the state is going to lose revenue because fewer cars are going to be using the highway.

There are not going to be additional costs to the increased demand for subway rides because the operational cost of the subway and the highway are the same.

Because of less traffic in the highways, some people are willing to pay the $.10 more in order to reach their destination quickly, there is going to be less traffic at any time of the day.

b. There are going to be additional cost because of the reduced use of gasoline and the tax impost on the gasoline price is going to be $9,000, the revenue of the government will be reduce by $9,000

Due to the less consumption of fuel, the pollution of such city will be reduced.

30,000 gallons x $1 x 30% tax = $9,000

Chapter 6

Problem 1

PV = 740,000 –  = 667,991.29[pic 1]

The present value of the net benefits at the end of 3 years at 4% discount rate is 667,991.29.

1. PV –  [pic 2]

667,991.29 – [264,443.07 + 272744.08 + 280,033.85] = 817,201

The present value of the net benefits assuming that the benefits are realized at the end of each of three years is 817,201.

1. PV  - 275,000 +  [pic 3]

667,991.29 – [275,000 + 283,653.84 + 291,235.20] = 967,880.33

The PV of net benefits assuming that the benefits are realized at the beginning of each of the three years is 967,880.33.

1.  PV –  [pic 4]

667,991.29 – [264,321.41 + 231,654.24 +279,710.98] = -107,695.34

If we calculate the NV at the middle of the every year, the project is not beneficial because it give us a negative value.

1. PV beginning of each year 137,500 +  +424,944.52[pic 5][pic 6]

PV end of each year  = 408,600.49[pic 7]

667,991.29 – [424,944.52 + 408,600.49] = 165,553.72

Assuming that half of each year’s benefits are calculated at the beginning of each year and the other half at the end of each year, the PV of the net benefit is 165,553.72.

1. The temporary bridge passes the net benefit test.  However, if we calculate the NV at the middle of every year it will give us a negative answer and it would not be beneficial in that case.

Problem 6

Costs: $12,000,000 of construction + $ 750,000 of maintenance per annum for 20 years (effectuated at the beginning of each year)

                                         = $ 21,118,600

Benefits: $1 200 000 for year 1+ 4% of growth for next 19 years + $4 000 000 of salvage value.

                                         = $ 23,790,800

Net Present Value: 23,790,800 – 21,118,600= $ 2,672,200

1. PV = 1.2 = 21.65[pic 8]

PV = 21.65

PV net benefit at 1% discount rate 21.65 – 12.750 = 8.9

21.65 – 13.76 = 7.89

The ranges giving by the analyst are 1% and 6%