2. Most of the main roads and bridges in synthetic Jackson County were built in the...
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2. Most of the main roads and bridges in synthetic Jackson County were built in the 1930s. Currently the county is devoting $10M of its annual budget in maintenance costs to the aging infrastructure. The Jackson County Commissioner's office has received a bid to replace all of the roads and bridges at a cost of $10M per year for five years, with work staring Jan 1 and annual payments due the following Dec 31 (at the end of the year). A county official plans to accept this bid arguing that the county will fully recoup its infrastructure expenditure in the first 5 years aftor the projoct is completed You are a policy consultant hired by a local cifizen group to review the plan. Through your invostigations, you decide that a 7% discount rate would be appropriate. You assume that the annual coad maintenance paymonts would continue until the end of the project which means no budget savings in the first five years. In other words, this analysis is looking only at the costs and benefits of replacement, with the bonofits of no road maintenance costs beginning in yoar 6. (0) Calculate the NPV of this projact based on the County official's 10-year timeline. Note. Using Excel will help with this analysis. (b) Is the official's assertion about recouping costs correct? Why or why not? (c) How robust is your conclusion? Conduct a sensitivity analysis to check this and explain what you did and what you found 2. Most of the main roads and bridges in synthetic Jackson County were built in the 1930s. Currently the county is devoting $10M of its annual budget in maintenance costs to the aging infrastructure. The Jackson County Commissioner's office has received a bid to replace all of the roads and bridges at a cost of $10M per year for five years, with work staring Jan 1 and annual payments due the following Dec 31 (at the end of the year). A county official plans to accept this bid arguing that the county will fully recoup its infrastructure expenditure in the first 5 years aftor the projoct is completed You are a policy consultant hired by a local cifizen group to review the plan. Through your invostigations, you decide that a 7% discount rate would be appropriate. You assume that the annual coad maintenance paymonts would continue until the end of the project which means no budget savings in the first five years. In other words, this analysis is looking only at the costs and benefits of replacement, with the bonofits of no road maintenance costs beginning in yoar 6. (0) Calculate the NPV of this projact based on the County official's 10-year timeline. Note. Using Excel will help with this analysis. (b) Is the official's assertion about recouping costs correct? Why or why not? (c) How robust is your conclusion? Conduct a sensitivity analysis to check this and explain what you did and what you found
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Solution a INCREMENTAL CASH FLOW IF BID IS ACCEPTED N YEAR 1 2 3 4 5 6 7 8 9 10 a Cash Flow for rep... View the full answer
Related Book For
Stats Data and Models
ISBN: 978-0321986498
4th edition
Authors: Richard D. De Veaux, Paul D. Velleman, David E. Bock
Posted Date:
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