A toll bridge across the Mississippi River is being considered as a replacement for the current I-40 bridge linking Tennessee to Arkansas. Because this bridge, if approved, will become a part of the U.S. Interstate Highway system, the B-C ratio method must be applied in the evaluation. Assume that the initial surfacing of the bridge is included in the initial investment costs of the structure.

a. What is the capitalized worth of the bridge (for the new design)?

b. Determine the B-C ratio of the bridge over an infinite time horizon (for the new design).

c. Should the initial design or the new design be selected?

Initial design

Investment costs of the structure are estimated to be $16,200,000 and $330,000 per year in operating and maintenance costs are anticipated. In addition, the bridge must be resurfaced every fourth year of its 24-year projected life at a cost of $1,390,000 per occurrence (no resurfacing cost in year 24). Revenues generated from the toll are anticipated to be $2,700,000 in its first year of operation, with a projected annual rate of increase of 2% per year due to the anticipated annual increase in traffic across the bridge. Assume that market (salvage) value for the bridge at the end of 24 years is zero and a MARR is 8% per year.

New design

Suppose that the toll bridge can be redesigned such that it will have a (virtually) infinite life. Revised costs and revenues (benefits) are given as follows:

Capital investment:$21,100,000

Annual operating and maintenance costs:$265,000

Resurface cost every sixth year: $910,000

Structural repair cost, every 23th year:$1,650,000

Revenues (treated as constant, no rate of increase):$2,880,000

MARR remains at 8% per year.