Reference no: EM132593272

A city council considers to construct a new toll bridge across the river. Investment cost of the bridge is estimated to be $7,000,000 with an annual operating and maintenance costs of $130,000 per year. In addition, the bridge must go through a comprehensive maintenance in every fifth year of its 30-year expected life at a cost of $500,000 per occurrence (no cost in year 30). It is expected 200,000 vehicles per year to cross the bridge. The city plans to set the toll-fee as $5 in its first year of operation, and increases it by $0.25 every year. Assume that market value for the bridge at the end of 30 years is zero and a MARR is 10% per year.

a) Draw the cash flow diagram of the problem.

b) Should the toll bridge be constructed? Justify your answer using B-C ratio method and show all your calculations.

c) Write down the meaning of B-C ratio calculated in b using your own words.

d) In order to have a B-C ratio of 1 (Break even point), how many vehicle should across the bridge per year?