ce 326 fall 2013 alternative evaluation practice problems
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Problem 1:
A transit company is looking to purchase a new bus for its fleet. The agency has 3 options, Type A, Type B, and Type C. They have estimated the capital, maintenance, fuel, and emissions costs below:
Initial Cost
Annual Maintenance
Cost
Annual Fuel Cost
Annual Emissions
Cost
Option ($) ($/year) ($/year) ($/year)
Type A 375,000 6,000 18,000 10,000 Type B 400,000 7,500 15,000 9,000
Type C 450,000 7,000 12,000 5,000
Assuming all other benefits are the same for the vehicles types, use net present worth analysis to determine which bus should be purchased. Assume i = 3% annually, and the service life of each vehicle is 10 years. (Note: All purchases will result in a negative cash flow‐ this is not a benefit‐cost analysis).
Problem 2:
Three different improvements are being considered on a highway to improve the safety and efficiency of the roadway. The costs and benefits for each option are provided in the table below. Assume the MARR is 4% and the analysis period is 20 years.
(1) Show the cash flow diagram for each option (it is ok to use … to represent a uniform portion of the diagram).
(2) Determine which alternative (if any) should be chosen, using Benefit‐Cost Analysis
Construction Cost
Annual Safety Benefits
Annual Congestion Benefits
Option ($) ($/year) ($/year)
1 125,000 3,000 7,000 2 200,000 7,500 9,000
3 215,000 8,500 9,000
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