There has been discussion about widening the Orlando bridge to add one more lane to improve traffic congestion and reduce fatal accidents. Residents and tourists heavily use the bridge so there are many people who could benefit from the project. Imagine you are working for the Florida Department of Transportation and must carry out a Cost Benefit Analysis to help with the decision making process. You are told you should only use the following information:

• assume a global perspective
• the proposed new lane will take 2 full years to build. It will require $65 million per year in construction costs.
• after the construction is complete, the improved bridge will decrease travel time for tourists and residents. The monetized value of this benefit is $12 million per year.
• You are instructed to assume the government has a 4% real discount rate and that the reduced travel time is expected to continue for 13 years. All costs and benefits are in real, inflation adjusted dollars. Use the table to help coordinate the timing of these impacts. You may treat the impacts as if they "arrive" at the end of the year indicated in the table

YEAR COST BENEFITS

1 65 0

2 65 0

3 0 12

4 0 12

5 0 12

6 0 12

7 0 12

8 0 12

9 0 12

10 0 12

11 0 12

12 0 12

13 0 12

14 0 12

15 0 12

A. What are the courses of action you are tasked to consider?

B. Find the Net Present Value of improving the bridge using the given parameters.

C. Given the information, should you recommend that Florida proceed with the project from an economic efficiency point of view?

D. Name a beneficial impact that could be included but is not presently. How could you monetize that impact?

E. Describe two weaknesses or limitations of Cost Benefit Analysis in general and what impact those weaknesses have on the soundness of the CBA approach.