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Large city is located close to a major seaport. It has been proposed that a new superhighway be built between the city and the
Large city is located close to a major seaport. It has been proposed that a new superhighway be built between the city and the seaport, running parallel to the present congested, two-lane highway. A group of consulting engineers has estimated that the new highway will provide the following direct benefits: (1) additional commerce between the city and the seaport, having a value of $50 million per year; (2) future economic growth within the region over a 10-year period, resulting in an increase of $5 million per year in commercial activity, beginning in the second year; (3) a reduction in highway accidents, resulting in a direct savings of approximately $0.8 million per year. On the other hand, the following disadvantages or dis-benefits are associated with the new highway: (i) the destruction of valuable farmland that currently contributes $1.3 million per year to the regional economy; (ii) a decrease in commercial activity along the present highway, resulting in a loss of $0.7 million per year. Assess the desirability of the proposed superhighway, based on a construction cost of $280 million and a yearly maintenance cost of $1.5 million. Assume a lifetime of 30 years and an interest rate of 7%, compounded annually.
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