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.