Engineering Economic Analysis

Problems 511

With interest at 7%, what is the benefit-cost ratio for

this project? (Ans~er: 0.51)

-11 A government agency has estimated that a flood con-
trol project has costs and benefits that are parabolic,
according to the equation

(Present worth of benefits)2

- 22(Present worth of cost) + 44= 0

where both benefits and costs are stated in millions

of dollars. What is the present worth of cost for the

optimal size project?

.12 The Highridge Water District needs an additional sup-
ply of water from Steep Creek. The engineer has
selected two plans for comparison:

Gravity plan:Divert water at a point 10 miles up

Steep Creek and carry it through a pipeline by

gravity to the district.

Pumping plan:Divert water at a point near the

district and pump it through 2 miles of pipeline

to the district. The pumping plant can be built in

two stages, with half-capacity installed initially

and the other half 10 years later.

Use a 4O-year analysis period and 8% interest.

Salvage values can be ignored. During the first

10 years, the average use of water will be less than

during the remaining 30 years. Use the conventional

benefit-cost ratio method to select the more econom-

ical plan.

(Answer:Pumping plan)

3 Calculate the conventional and modified benefit-cost

ratio for the investment represented by the following

data.

Required first costs

Annual benefits to users

Annual disbenefits to users

Annual cost to government

Project life

Interest rate

$1,200,000

$500,000

$25,000

$125,000

35 years

10%

16-14 For the data given in Problem 16-13, for handling

benefits and costs, demonstrate that the calculated

BjC ratio is the same using the each of the follow-

ing methods: present worth, annual worth, and future

worth.

16-15 Big City Carl, a local politician, is advancing a project

for the construction of a new dock and pier system at

the river to attract new commerce to the city. A com-

mittee appointed by the mayor (an opponent of Carl's)

has developed the following estimates for the effects

of the project.

Cost to wreck and remove current

facilities

Material, labor, and overhead for new

construction

Annual operating and maintenance

expenses

Annual benefits from new commerce

Annual disbenefits to sportsmen in area

Project life

Interest rate

$ 750,000

2,750,000

185,000

550,000

35,000

20 years

8%

(a)Using the conventional BjC ratio, determine

whether the project should be funded.

(b)After studying the numbers given by the com-

mittee, Big City Carl argued that the project life

should beat least25 years and more likely closer

to 30 years. How did he arrive at this estimate,

and why is he making this statement?

16-16 Two different routes, which entail driving across a

mountainous section, are being considered for a high-

way construction project. The first route (the high

road) will require building several bridges and navi-

gates around the highest mountain points, thus requir-

ing more roadway. The second alternative (the low

road) will require the construction of several tun-

nels, but takes a more direct approach through the

mountainous area. Projected travel volume for this

new section of road is 2500 cars per day. Given the fol-

lowing data, use themodifiedBjCratio to determine

--..-------.

-- - -----

1\ y.

':

Gravity Pumping

Initial investment $2,800,000 $1,400,000

Additional investment (^0) 200,000
in tenth year
Operation, maintenance, 10,000 25,000
replacements, per year
Average power cost per^0 50,000
year (first 10 years)
Average power cost per^0 100,000
year (next 30 years)