4(b) A 3-km stretch of highway is known locally as "Fog Hollow". In an attempt to reduce accidents, the shoulders along Fog Hollow could be widened and paved at a cost of S0.35 million per km, and large dynamic message signs could be installed at both ends of the dangerous stretch. The signs would be controlled by a computer connected to sensing devices to display recommended speeds for various fog conditions. The fog warning signs could be installed for $200,000. These will have $1,000 operating and maintenance costs during the first year of operation and these costs will rise at a rate of 2% per year for the subsequent years. The life of this system is 5 years. If the average accident cost in Fog Hollow amounts to $30,000, how many accidents per year would have to be avoided by the project to make it acceptable for a 20-year study period? The life of widened paved shoulder is 20 years. The MARR (i.e. discount rate) used for such projects is 10%. Assumption: Maintenance of the paved shoulder is a part of the overall highway and is not included here. Hint: Determine the minimum benefit value that would allow the project to be feasible. Accidents avoided per year will be treated as a benefit.

Answer rating: 100% (QA)

To determine the minimum number of accidents per year that would make the project feasible we need to calculate the net present value NPV of the proje... View the full answer