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Two mutually exclusive options are considered for a bus terminal undertaken by the city government. Option A is a new terminal at a new location,
Two mutually exclusive options are considered for a bus terminal undertaken by the city government. Option A is a new terminal at a new location, while Option B involves upgrades to the current terminal For both options, upgrades will be required for the roads that connect to each terminal. With Option A, homeowners in the area will be affected by noise emanating from constant traversing of transit buses. This situation will cause the price of houses in that area to drop. To offset this effect, the government will compensate the homeowners. With Option B, buses will be required to travel a longer distance to get to the terminal. A 10-year time frame is considered for this project. The MARR is set at 10%. Find: a. The benefit-cost ratio for Option A. (4 Marks) b. The benefit-cost ratio for Option B. (4 Marks) c. What method should we use to determine which option is better (in terms of BCR)? (1 Mark) d. Using the suggested method in Part c above, perform computations to determine which option should be accepted or chosen? (6 Marks) OPTION B OPTION A $55,000,000 $28,500,000 EFFECT Improved service /year Increased travel cost by buses/year Cost of connecting roads improvements Construction/renovation $15,000,000 0 $50,000,000 $10,000,000 $150,000,000 $115,000,000 costs Reduced property value 0 $25,000,000
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