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Railroad Crossing Example (Benefit-Cost Ratio)

Railroad Crossing Example (Benefit-Cost Ratio) - assumed to...

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Railroad Crossing Example (Benefit-Cost Ratio) Source: Engineering Economy by Sullivan, Wicks, and Luxhoj (Pearson, 2006) A major city in Tennessee is studying the feasibility of eliminating a railroad grade crossing by building an overpass. Traffic engineers have estimated that 2000 vehicles per day are delayed an average of 2 minutes each due to trains at the crossing. Trucks comprise 40% of the vehicles and the opportunity cost of their delay is assumed to be $20 per hour. The opportunity cost for the rest of the vehicles is
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Unformatted text preview: assumed to be $4 per hour. It is also estimated that the city will save $4000 per year in direct costs related to accidents at the crossing. Engineers have estimated that the overpass would cost $1M and have a useful life of 40 years. The salvage value will be $100,000. Maintenance for the overpass is estimated to cost $5000 more per year than for the grade crossing. If the city’s cost of capital is 7% per year, should the city build the overpass?...
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