731196-13-12P AID: 1825 |

12/07/2019
RID: 213955 |
17/05/2022

Consider Alternative I:

Calculate the capital recovery factor as follows:

……
(1)
Here, N is number of years and i is interest rate.

Substitute 0.10 (10%) for i and 10 years for N in Equation (1).

Calculate the present worth factor as follows:

……
(2)

Substitute 0.10 (10%) for i and 10 years for N in Equation (2).

Calculate the present worth of costs for the highway project as follows:

……
(3)
Here, is a facility and user cost incurred in the year, n is the service life of the
facility, and i is the rate of interest.

Substitute $19000 for initial construction cost, $2500 for annual operating cost, $3000 for
salvage value, 0.10 (10%) for i, and 5 years and 10 years for n in Equation (3).

Substitute 6.1446 for and 0.3855 for .

Thus, the present worth of Alternative I is .

Consider Alternative II:

Calculate the capital recovery factor by substituting 0.10 (10%) for i and 10 years
for N in equation (1).

Calculate the present worth factor by substituting 0.10 (10%) for i and 5 years for N
in Equation (2).

Calculate the present worth factor for 10 years by substituting 0.10 (10%) for i and
10 years for N in Equation (2).
Calculate the present worth of costs for the highway project by substituting $8000
for initial construction cost, $4000 for annual operating cost, $900 for salvage value, 0.10
(10%) for i, and 10 years for n in Equation (3).

Substitute 6.1446 for , 0.3855 for , and 0.6209 for

Thus, the present worth of the Alternative II is .

Consider Alternative III:

Calculate the capital recovery factor by substituting 0.10 (10%) for i and 10 years
for N in Equation (1).

Calculate the present worth factor for 10 years by substituting 0.10 (10%) for i and
10 years for N in Equation (2).

Calculate the present worth of costs for the highway project by substituting
$20000 for initial construction cost, $2,500 for annual operating cost, $4600 for salvage
value, 0.10 (10%) for i, and 5 years and 10 years for n in Equation (1).

Substitute 6.1446 for and 0.3855 for .

Thus, the present worth of the Alternative III is .

Here, Alternative I has the lowest value when comparing other alternatives.

Therefore, the preferred project based on the economic criteria is .