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Please answer correctly, thank you. Two different options are under consideration for an interstate highway expansion in the mountains. Currently, the stretch of the highway
Please answer correctly, thank you.
Two different options are under consideration for an interstate highway expansion in the mountains. Currently, the stretch of the highway considered for expansion is 22 miles long. It takes 30 minutes to travel this stretch and the annual upkeep is $120,000. The expansion work would start in 2017. Option A: Add a lane to the highway: Work will be finished by the end of 2019 (3 years) with a cost of 7 million per year. Once completed it is calculated that it will take 25 minutes to travel through this stretch and there will be an annual savings of $1, 200,000 due to the reduced number of accidents. The annual upkeep will be $140,000. Option B: Reroute and build a tunnel: Work will be finished by the end of 2021 (5 years) with cost of 9 million per year. Once completed, the stretch will be 12 miles long and it is calculated that it will take 15 minutes to travel through it. There will be an annual savings of $800,000 due the reduced number of accidents. The annual upkeep will be $165,000. The operating cost per car is evaluated at $0.15 per vehicle. The value of time is calculated as $0.25 per minute. The volume of traffic is expected to stay constant at 400,000 vehicles per year. Calculate the Benefit/Cost Ratio for the two options. Which option should be chosen, if either? All the monetary values are given in constant (real) dollars, the real interest rate to be used in the B/C analysis is 3%Step by Step Solution
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