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

## Question:

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 of650,000 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 of800,000 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?

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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