When red light cameras are installed at high-risk intersections, rear-end collisions go up, but all other types of accidents go down, including those involving pedestrians. Analysis of traffic accidents in a northwestern city revealed that the total num­ber of collisions at a group of selected photo-en­hanced intersections decreased from 33 per month to 18. At the same time, the number of traffic tick­ets issued for red light violations averaged 1100 per month, at a cost to violators of $85 per cita­tion. The cost for the contractor to install the basic camera system at the selected intersections was $750,000. For analysis purposes, use an interest rate of 0.5% per month and a 3-year study period. The cost of a collision is estimated at $41,000 and traffic ticket costs are considered

Question

as disbenefits.

(a) Calculate the B/C ratio for the camera system from the perspective of the city.
(b) The contractor has proposed to operate and maintain the system, plus provide collected violation data to the police department each 24-hour period for a fee of 50% of the esti­mated cost of a collision. Calculate the prof­itability index (PI) from the perspective of the contractor.

Answer 1

B = 41,000(33 –18) = $615,000
D = 1100(85) = $93,500
C = 750,000(A/P,0.5%,36)
= 750,000(0.03042)
= $22,815

(a) (B-D)/C = (615,000 – 93,500)/22,815
= 22.86
(b) Disregard disbenefits (tickets)

AW of NCF = 0.5B
= 0.5(41,000)(33-18)
= $307,500

PI = 307,500/22,815
= 13.48