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 flowthis is not a benefitcost 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 BenefitCost 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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Page 1: CE 326 Fall 2013 Alternative Evaluation Practice Problems

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  

Page 2: CE 326 Fall 2013 Alternative Evaluation Practice Problems
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