Problem Statement A city must construct a new bridge Four pr

Problem Statement: A city must construct a new bridge. Four proposals were submitted and summarized in the table below. Your task is to help the city determine the optimal project financially.

Bridge Proposals

Assumptions:

Useful Life = 40 years;

Value of Time = $14/hr;

Accident Savings = $2500/accident

Discount Rate = 8%

Part 1: Feasible projects
Compute the benefit/cost ratios of each alternative and determine which are feasible.

Solution

a)

Benefit cost ratio of each alternative is more than 1, thus each alternative is feasible. However Benefit cost ratio of Alternative 2 is best and is equal to 6.38. Hence Alternative 2 is the best Option

b)

Looking at the net benefit per year at the bottom row, Alternative 2 has highest net benefit and hence the best option.

Order the alternatives by increasing AW of costs (Third last row)

Alternative 3(Least AW cost)

Alternative 2

Alternative 4

Alternative 1(Highest AW cost)