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- From: Business,
- Posted on: Sun 03 Aug, 2014
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A highway department is considering building a temporary bridgeto cut travel time during the three years it will take to build a permanent bridge. The temporary bridge can be put up immediately at a cost of $740,000. At the end of three years, it would beremoved and the steel would be sold for scrap. The real net costs of this would be $81,000.Based on estimated time savings and wage rates, fuel savings, and reductions in risks ofaccidents, department analysts predict that the benefits in real dollars would be $275,000 duringthe first year, $295,000 during the second year, and $315,000 during the third year. Departmental regulations require use of a real discount rate of 4 percent.

a) Calculate the net present value assuming that the benefits are realized at the end of eachof the three years.

b) Calculate the net present value assuming that the benefits are realized at the beginning ofeach of the three years.

c) Calculate the net present value assuming that the benefits are realized in the middle ofeach of the three years.

d) Calculate the net present value assuming that half of each year’s benefits are realized atthe beginning of each of the three years and the other half at the end of the year.

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