Bridge alternative A:
Trestle bridge expected to last 25 years. It will cost $80,000 and will require annual maintenance costing
$4000.
Bridge alternative B: New alloy steel bridge, which would
last 50 years, cost $160,000 and require
annual maintenance costing $2000.
Assume a discount rate of 6 percent.
The trestle bridge will have to be closed
to traffic for 1 month while it is being rebuilt 25 years hence. The alloy steel bridge is expected to withstand any storm
conditions, whereas the trestle
bridge would give way in a Ò100-year storm.Ó Assume both bridges are equally
effective and have the same capacity.
To begin disregard both the bridge closure issue (negative effect) and
the possibility of storm damage costs.
Therefore, the
trestle bridge would cost:
P = $80,000 + $80,000 (SPPW for
i=0.06, n=25) + $4000 (USPW for i=0.06, n=50)
= $80,000
+ $80,000(0.233) + $4000(15.762)
= $80,000
+ $18,640 + $63,048 = $161,688
Therefore, the
steel alloy bridge would cost:
P = $160,000 + $2000 (USPW for
i=0.06, n=50)
= $160,000 +
$2000(15.762)
=
$160,000 + $31,524 = $191,524
Hence, the trestle
bridge would be almost $30,000 cheaper.