Problem1:

Atransitcompanyislookingtopurchaseanewbusforitsfleet.Theagencyhas3options,TypeA,Type
B,andTypeC.Theyhaveestimatedthecapital,maintenance,fuel,andemissionscostsbelow:

Option
TypeA
TypeB
TypeC

Initial
Cost
($)
375,000
400,000
450,000

Annual
Maintenance
Cost

AnnualFuel
Cost

($/year)
6,000
7,500
7,000

($/year)
18,000
15,000
12,000

Annual
Emissions
Cost
($/year)
10,000
9,000
5,000

Assumingallotherbenefitsarethesameforthevehiclestypes,usenetpresentworthanalysisto
determinewhichbusshouldbepurchased.Assumei=3%annually,andtheservicelifeofeachvehicle
is10years.(Note:Allpurchaseswillresultinanegativecashflowthisisnotabenefitcostanalysis).

Problem2:
Threedifferentimprovementsarebeingconsideredonahighwaytoimprovethesafetyandefficiency
oftheroadway.Thecostsandbenefitsforeachoptionareprovidedinthetablebelow.Assumethe
MARRis4%andtheanalysisperiodis20years.
(1) Showthecashflowdiagramforeachoption(itisoktousetorepresentauniformportionof
thediagram).
(2) Determinewhichalternative(ifany)shouldbechosen,usingBenefitCostAnalysis

Option
1
2
3

Construction
Cost
($)
125,000
200,000
215,000

Annual
Safety
Benefits
($/year)
3,000
7,500
8,500

Annual
Congestion
Benefits
($/year)
7,000
9,000
9,000