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A 50-meter tunnel must be constructed as part of a new aqueduct system for a city....

Question

A 50-meter tunnel must be constructed as part of a new aqueduct system for a city....

A 50-meter tunnel must be constructed as part of a new aqueduct system for a city. Two alternatives are being considered. One is to build a full-capacity tunnel now for $500,000. The other alternative is to build a half-capacity tunnel now for $300,000 and then to build a second parallel half-capacity tunnel 20 years hence for $400,000. The cost of repair of the tunnel lining at the end of every 10 years is estimated to be $20,000 for the full-capacity tunnel and $16,00 for each half-capacity tunnel.

Determine whether the full-capacity tunnel or the half-capacity tunnel should be constructed now. Solve the problem by B/C ratio analysis using a 5% interest rate and a 50-year analysis period. There will be no tunnel lining repair at the end of the 50 years.

Answers

OPtion-1 -1 Full- CaPacity tunnel CompataBionop total as on today :- -# Initial inveltme af Cont ruction - S00000 Co stofthe$7,538 o. 364 o 2314 201000 30 4, 628 2,840 o 1420 4-0 Totl Present Value f 16, 234 Qining RePair Cost how oPthon- 2 Halb- CaC) Preset value ef Oiving aud 2780 Resaire Co t -wote-2 .. Tofal Presef due f the 13 $A,53,540 Pojece rhe refoaire aud linivgCon clusion V Coyt Projec 1 altesnive- Ful cafauita tunnel = $5,16,234 Per 2nd lternabive- two half-Calacita - $453,540 tunneIt was advised to opt for the alternative 2 , that is the constitution of half tunnels is more economical than the constitution of one single full capacity tunnel today.

Disclaimer:-

In the 11th linne of the problem it was given the lining and repair cost is 1,600$ , But the cama is ther after two zeros i.e $16,00

While solving the problem it was taken as 1,600$ only but there is a chance it may be $16,000

The answer may change it was $16,000


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