Reference no: EM132008251

Question: A municipal ferry system crossing the bay at a costal city handles an average daily volume of 4,000 vehicles, of which 25 percent is trucks and the reminder cars. The crossing takes 20 minutes and an average wait for the ferry is 15 minutes. There is a $0.5 toll per vehicle. Then annual operating disbursements for the ferry system, such as fuel, maintenance, repairs, wages, etc., total $500,000. The system could be sold, as is, to other communities for a total of $700,000. Otherwise, the remaining economic life is 30 years with zero salvage value.

The future traffic and the average wait time are expected to grow by 1 percent per year compound, respectively.

The waiting time is estimated to cost $8.00 per hour for trucks and $4.00 for cars. The stop-and-start cost is estimated to be 1.0 cent for trucks and 0.5 cent for cars, and the operating costs are 40 cents and 10 cents per mile, respectively.

A tunnel has been proposed to eliminate the ferry system. Cars and trucks could drive the 1-mile crossing at 40 mph without stopping. The present total traffic is estimated at 6,000 vehicles, consisting of the 4,000 vehicles that use the ferry plus 2,000 private vehicles (all are cars) that presently avoid the ferry by driving 7 miles around the bay at an average speed of 30 mph. This route would include five traffic stop-starts, each averaging 30 seconds.

The tunnel would cost $32,000,000, with a 30-year economic service life and zero salvage value. The annual maintenance and repair would total $60,000 with annual operating disbursements of $90,000. The toll charges for the tunnel would be $0.40 per car and $0.75 per truck. If the discount rate is 6.5 percent, what action should be taken? Conduct the analysis based on the benefit-to-cost ratio method.

Hint: Use concept of consumer plus, B/C = (Annual user cost for ferry - Annual user cost for tunnel + Annual consumer plus)/(Annual operating cost for Tunnel - Annual operating cost for ferry).