A new suburban development project is being planned to the west of Monterrey, Mexico. There is now a two-lane road from the site of the development, along the base of the mountain Cenv de la S/lla (Saddle Hill). The new development will require additional road capacity. Two alternatives are being considered. The first is to upgrade the existing road to four wide modern lanes. The second is to build a new four-lane highway east through Saddle Hill tunnel. The following data are available concerning the two routes:
|
Route
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Distance
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First Cost (pesos)
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Operating and Maintenance costs per year (pesos)
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|
Base of mountain
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20 km
|
210 million
|
900000
|
|
Tunnel
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10 km
|
450 million
|
1300000
|
The planning period is 40 years for both routes. The MARR is 10%. Cars will travel at 100 kilometres per hour along either route. Operating cost for the cars is expected to be about 2.50 pesos per kilometre along either route. About 400 000 trips per year are expected on either route.
(a) Which route should be built? Use only the data given. Use annual worth to make your decision.
(b) What important benefit of the Saddle Hill tunnel route has been left out of the analysis?
(c) Do you need more information about travellers to determine if the benefit that has been left out of the analysis from part (b) would change the recommendation? Explain.
(d) How would the possibility- of collecting a toll on the tunnel route affect your recommendation?