An existing two-lane highway between two cities, 10 miles apart, is to be converted to a four-lane

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An existing two-lane highway between two cities, 10 miles apart, is to be converted to a four-lane divided freeway. The average daily traffic (ADT) on the new freeway is forecast to average 20,000 vehicles per day over the next 20 years. Trucks represent 5% of the total traffic. Annual maintenance on the existirig highway is $1500 per lane-mile. The existing accid, + rate is 4.58 per million vehicle miles (MVM). These alternate plans of improvement are now under consideration. Plan A: Improve along the existing development by adding two lanes adjacent to the existing lanes at a cost of $450,000 per mile. It is estimated that this plan will reduce auto travel time by 2 minutes and truck travel time by 1 minute. The Plan A estimated accident rate is 2.50 per MVM. Annual maintenance is estimated to be $1250 per lane mile. Plan B: Improve along the existing alignment with grade improvement sat a cost of $650,000 per mile. Plan B would add two additional lanes, and it is estimated that this plan would educe auto and truck travel time by 3 minutes each. The accident rate on this improved road is estimated to be 2.40 per MVM. Annual maintenances estimated to be $1000per lane mile. Plan C: Construct a new free way on new alignment at a cost of $800,000 per mile. It is estimated that this plan would reduce auto travel time by 5 minutes and truck travel time by 4 minutes. Plan C is 0.3 mile longer than A or B. The estimated accident rate for C is 2.30 per MVM. Annual maintenance is estimated to be $1000per lane-mile. Plan C includes abandonment of the existing highway with no salvage value.

If a 5% interest rate is used which of the three proposed plans should be adopted?

Incremental operating cost 6¢ per mile 18g per mile Autos Trucks Time saving Autos Trucks 3g per minute 15¢ per minute

Salvage Value
Salvage value is the estimated book value of an asset after depreciation is complete, based on what a company expects to receive in exchange for the asset at the end of its useful life. As such, an asset’s estimated salvage value is an important...
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