Gillian has developed estimates for strengthen­ing the undercarriage on a medium-use, 70-year-old bridge for which there is no budget to replace the bridge for the next 5 years. Esti­mates are P = $800,000, S = 0, maintenance cost, M&O = $10,000 per year, n = 5 years. Use a spreadsheet and MARR of 2% per year to do the following:

Question

(a) Determine what the project will cost in PW terms.

(b) During the analysis, Gillian learned that some 25 similar projects had been completed over the last 10 years. With the help of her supervisor, Gillian obtained the information below on the first cost, P, and maintenance cost, M&O, for these projects. Repeat the PW evaluation using expected values for these two estimates. Is PW higher or lower than the value in part (a)?



(c) Assume the bridge is strengthened and ad­ministratively moved to the toll division, which promises a net revenue of $180,000 per year above the M&O cost. Is the project economically justified at the first cost of $800,000? What is the projected response from the driving public to the toll on this 70-year-old bridge?

Answer 1

(a) Function: = - PV(2%,5,-10000) – 800000 displays PW = $-847,135



(b) Expected value computations: E(P) = $886,000 and E(M&O) = $7,280 per year



Function: = - PV(2%,5,-7280) – 886000 displays $-920,314



PW is more costly by $73,179



(c) Function: = - PV(2%,5,180000) – 800000 displays $48,423.



It is economically justified; but will likely be objected to by the driving public given the bridge’s age, condition, and no significant improvements on visible parts of the bridge.