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Unformatted text preview: Name CEE 3000 Homework #4 l) A new landﬁll is being proposed for your community. You have been asked to determine
what tipping fee per ton must be charged over 20 years to cover the equivalent annual costs
of the construction and operation of this landﬁll. It is expected that 10,000 tons of material
per year will be placed in the landﬁll. The cost to construct the landﬁll is $750,000; the
annual operation and maintenance cost is $50,000 per year beginning at EOY l and
increasing $5,000 each year thereafter. The nominal interest rate is 7% a) How much should be charged per ton? (3 points) b) Suppose the state environmental protection agency has determined that your design is
deﬁcient in that impermeable liners that would minimize leaching into the local water
table had not be considered. The agency is requiring that such liners be incorporated into
the design at a cost of $5 0,000 (thus increasing the construction cost). The monitoring of
potential contamination from the landﬁll is also expected to cost $5,000 at BOY l and
increase 5% each year thereafter to the end of the project life (20 years). Including these
new costs, now what is the tipping fee? The interest rate continues to be 7%. (3 points) 2) You work for the Georgia State Road and Tollway Authority (SRTA). You have been asked
to determine the required toll per vehicle that would have to be charged on a new toll lane if
the cost of the construction and the O&M costs over the life of the project (50 years) is to be
paid for solely by toll revenues. This toll lane is to be constructed adjacent to an existing
Interstate highway, so there is land to build the lane, and it is expected that only one lane will
be necessary. The speciﬁcs are as follows. The bond (or loan) that will be necessary to build the lane is
$100,000,000 with a nominal market interest rate of 6% compounded monthly. You are
expected to set aside enough revenue on a monthly basis to cover a monthly payment back
to the bond holders (even though in reality payment wouldn’t occur until the end of the year
or even until the end of the bond period). When the toll lane opens, you expect the number
of cars to use the lane per month is 300,000, with this volume to increase 500 cars each
month until year 30 when the capacity of the toll lane can no longer handle additional cars.
After year 30, the volume per month will continue at this capacity level. The interest rate for
the cost of money with respect to the toll revenues is also 6%. What should be the toll rate if the SRTA wants to have sufﬁcient revenue over the life of the
project to cover the total costs of the toll lane? (5 points) 3. Find the missing value (2 points each) V _ In H 0. Us M _....._._. ‘.Y.
0 ta$4§L1é§q 4) Your community wants to build a new water quality treatment plant, and the mayor wants to
know what the capitalization cost is of the proposed facility. Being the resident expert on
engineering economy, you have been volunteered to calculate this cost. Given that you are
trying to impress the mayor, you want to show him two different ways that this estimate can
be calculated. Because the capital cost of the construction of the facility is using federal
funds, the mayor does not consider the construction cost to be of interest. However, the
federal grant requires the local community to pay operating and maintenance expenses and
any rehabilitation costs that may occur over the life of the facility. If you expect the annual O&M costs to be $150,000 and a major rehabilitation of $1,000,000
must occur five years after the ﬁrst 10 years of operation and every ﬁve years thereafter,
what is the capitalized cost of O&M and rehabilitation expenses in perpetuity? Nominal
interest rate is 8%. a) Calculate your answer by annualizing the 5year rehabilitation cost and discounting to
the present time (3 points) b) Calculate your answer by determining the effective interest rate of the fiveyear
rehabilitation cost and then discounting to the present time. (3 points) 5. A city water department has decided that two alternatives are available to meet the need for
an additional 40 millions gallons of water per day. One is to build a dam and reservoir, the
other is to undertake a strong program of water conservation/education. The dam and related
facilities can be constructed over 3 years at a cost of $15 million in year 1, $6 million in year
2, and $4 million in year 3. Thereafter the operations and maintenance cost is $500,000 per
year. The conservation program will cost $5 million the first year, $4 million the second year, and
$3 million the third year. Thereafter, $2 million per year will have to be spent to maintain
low water use. The planning horizon for both alternatives is 50 years; any costs beyond this length of time
are ignored, and an interest rate of 7% is to be used. Which alternative should be
undertaken? (5 points) 6. The County School Board has asked for your help in comparing alternative methods of
providing education in newly developed suburban areas. For the following three alternatives, recommend the one that will be least costly to the Board. Assume the interest rate is 6% and
that the useful life of a school is 20 years. (5 points) Alternative 1: Build a new school
Cost for school and equipment: $3,000,000 O&M costs per year for the ﬁrst three years
of operation: $175,000 0&M yearly cost increase beginning after 3 years: 4% per year
Salvage value at EOY 20: $400,000 Alternative 2: Build temporary facilities at existing schools to
handle additional students Cost for temporary facilities $700,000
0&M costs per year for facilities for ﬁrst three years $50,000
Additional cost per year thereafter: $10,000 Alternative 3: Bus students to nearby schools where there is capacity
Cost the first year:  $400,000 Additional cost per year thereafter: $5 0,000 ...
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 Fall '07
 Meyer
 Interest, Nominal Interest Rate

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