A highway department is considering building a temporary bridge to cut travel time during the three years it will take to build a permanent bridge. The temporary bridge can be put up in a few weeks in year 1 at a cost of $750,000. At the end of three years, it would be removed and the steel would be sold for scrap. The real net cost of this would be $81,000. Based on estimated time savings and wage rates, fuel savings, and reductions in risks of accidents, department analysts predict that the benefits in real dollars would be $275,000 during the first year, $295,000 during the second year, and $315,000 during the third year. Departmental regulations require use of a real discount rate of 8 percent. (NB. Round discount factors to the nearest 2 decimal points). Calculate the present value of net benefits assuming that the benefits occur at the end of each of the three years. Calculate the present value of net costs assuming that the costs occur at the end of each of the three years Calculate the Net Present Value of the temporary bridge Calculate the Cost-Benefit ratio of the temporary bridge On the basis of the cost-benefit decision rules, say whether or not the temporary bridge passes the Cost-Benefit test
A highway department is considering building a temporary bridge to cut travel time during the three years it will take to build a permanent bridge. The temporary bridge can be put up in a few weeks in year 1 at a cost of $750,000. At the end of three years, it would be removed and the steel would be sold for scrap. The real net cost of this would be $81,000. Based on estimated time savings and wage rates, fuel savings, and reductions in risks of accidents, department analysts predict that the benefits in real dollars would be $275,000 during the first year, $295,000 during the second year, and $315,000 during the third year. Departmental regulations require use of a real discount rate of 8 percent. (NB. Round discount factors to the nearest 2 decimal points). Calculate the present value of net benefits assuming that the benefits occur at the end of each of the three years. Calculate the present value of net costs assuming that the costs occur at the end of each of the three years Calculate the Net Present Value of the temporary bridge Calculate the Cost-Benefit ratio of the temporary bridge On the basis of the cost-benefit decision rules, say whether or not the temporary bridge passes the Cost-Benefit test
Cornerstones of Cost Management (Cornerstones Series)
4th Edition
ISBN:9781305970663
Author:Don R. Hansen, Maryanne M. Mowen
Publisher:Don R. Hansen, Maryanne M. Mowen
Chapter19: Capital Investment
Section: Chapter Questions
Problem 15E: Gina Ripley, president of Dearing Company, is considering the purchase of a computer-aided...
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A highway department is considering building a temporary bridge to cut travel time during the three years it will take to build a permanent bridge. The temporary bridge can be put up in a few weeks in year 1 at a cost of $750,000. At the end of three years, it would be removed and the steel would be sold for scrap. The real net cost of this would be $81,000. Based on estimated time savings and wage rates, fuel savings, and reductions in risks of accidents, department analysts predict that the benefits in real dollars would be $275,000 during the first year, $295,000 during the second year, and $315,000 during the third year. Departmental regulations require use of a real discount rate of 8 percent. (NB. Round discount factors to the nearest 2 decimal points).
Calculate the present value of net benefits assuming that the benefits occur at the end of each of the three years.
Calculate the present value of net costs assuming that the costs occur at the end of each of the three years
Calculate the Net Present Value of the temporary bridge
Calculate the Cost-Benefit ratio of the temporary bridge
On the basis of the cost-benefit decision rules, say whether or not the temporary bridge passes the Cost-Benefit test
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