dolution

The state may eliminate a railroad grade crossingby building an overpass. The new structure, togetherwith the needed land, would cost $5.5 million. Theanalysis period is assumed to be 30 years becauseeither the railroad or the highway above it will berelocated by then. Salvage value of the bridge (actually, the net value of the land on either side of therailroad tracks) 30 years hence is estimated to be$950,000. A 6% interest rate is to be used.About 1000 vehicles per day are delayed by trainsat the grade crossing. Trucks represent35%, and 65%are other vehicles. Time for truck drivers is valuedat $25 per hour and for other drivers at $8 per hour.Average time saving per vehicle will be 2 minutes ifthe overpass is built. No time saving occurs for therailroad.The railroad spends $80,000 annually for crossingguards. During the preceding 10-year period, therail-road has paid out $1,500,000 in settling lawsuits andaccident cases related to the grade crossing. Theproposed project willentirely eliminate both theseexpenses. The state estimates that the new overpasswill save it about $12,000 per year in expenses directlydue to the accidents. The overpass, if built, will belongto the state.

Should the overpass be built?

Bonus Question (10 points):If the overpass isbuilt, how much should the railroad be asked tocontribute to the state as its share of the $5.5 millionconstruction cost?