A County Highway Department is considering either replacing or rehabilitating a bridge which crosses over a river dividing two nearby communities. Rehabilitation can be done either by force account for by contract. The cash flows associated with replacement and rehabilitation options for this bridge are shown in Table 1. Determine the most cost- effective option. Assume that interest is annually compounded at 6%. After the service life of the rehabilitated bridge is completed, the bridge will be replaced with the same cash flow as the present replacement option. Solve the problems using the annual cost method. Assume replacement in perpetuity. Cash Flows Associated with Replacement and Rehabilitation Option I: Replacement (Service life of the new bridge is 40 years) Capital Investment Initial = 45,000 15th year = 8,000 20th year = 1,500 30th year = 6,000 Annual maintenance cost = $500/year (throughout the service life) Salvage of existing bridge beams = $1,000 Option 2: Rehabilitation by Force Account (Service Life of the rehabilitated bridge is 15 years) Capital Investment Initial = 7,500 10th year = 1,200 Annual maintenance cost = $300/year (throughout the service life) Option 3: Rehabilitation by Contract (Service Life of the rehabilitated bridge is 25 years Capital Investment Initial = 12,000 10th and 20th year = 1,000 b. Annual maintenance cost = $200/year (throughout the service life)
A County Highway Department is considering either replacing or rehabilitating a bridge which crosses over a river dividing two nearby communities. Rehabilitation can be done either by force account for by contract. The cash flows associated with replacement and rehabilitation options for this bridge are shown in Table 1. Determine the most cost- effective option. Assume that interest is annually compounded at 6%. After the service life of the rehabilitated bridge is completed, the bridge will be replaced with the same cash flow as the present replacement option. Solve the problems using the annual cost method.
Assume replacement in perpetuity.
Cash Flows Associated with Replacement and Rehabilitation
Option I: Replacement (Service life of the new bridge is 40 years)
- Capital Investment
Initial = 45,000
15th year = 8,000
20th year = 1,500
30th year = 6,000
- Annual maintenance cost = $500/year (throughout the service life)
- Salvage of existing bridge beams = $1,000
Option 2: Rehabilitation by Force Account (Service Life of the rehabilitated bridge is 15 years)
- Capital Investment
Initial = 7,500
10th year = 1,200
- Annual maintenance cost = $300/year (throughout the service life)
Option 3: Rehabilitation by Contract (Service Life of the rehabilitated bridge is 25 years
- Capital Investment
Initial = 12,000
10th and 20th year = 1,000
b. Annual maintenance cost = $200/year (throughout the service life)
Given information
Replacement option
Initial investment = 45,000
15th year = 8,000
20th year = 1,500
30th year = 6,000
Annual maintenance cost = $500/year
Salvage of existing bridge beams = $1,000
N=40
MARR=65
Option 2:
Rehabilitation by Force Account
Initial investment = 7,500
10th year = 1,200
Annual maintenance cost = $300/year
N=15 Years
Option 3:
Rehabilitation by Contract
Initial cost = 12,000
10th and 20th year = 1,000
Annual maintenance cost = $200/year
N= 25 years
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