Calculate the total cost of the financing option

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Question - A state transportation department is considering a reconstruction project for an urban highway. The section to be reconstructed is 6 miles long. The highway segment costs $10,000 per mile per year to maintain. The current road user costs on this highway segment are estimated at $3,000,000 per year.

The planned reconstruction will cost $24,000,000. The reconstructed highway segment will have reduced maintenance costs of $5,000 per mile per year, and road user costs will be reduced by 30% compared to their present level. The service life of the reconstructed facility is 30 years following the start of the reconstruction project.

The state department is considering a bond issue bearing at 7% interest for 20 years to finance this project.

Assume the prescribed discount rate for public investment projects is 5%. Calculate the total cost of the financing option.

Reference no: EM133090520

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