CVEN349HW3-BENMOORE

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Texas A&M University *

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349

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Civil Engineering

Date

Apr 3, 2024

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pdf

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4

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1 T EXAS A&M U NIVERSITY Z ACHRY D EPARTMENT OF C IVIL E NGINEERING CVEN 349: C IVIL E NGINEERING P ROJECT M ANAGEMENT Spring 2024 Assignment 3 TOTAL POINTS: 100 DUE: February 29, 2024 OBJECTIVES Become familiar with financial decision making, contract documents, and construction project bidding concepts. DELIVERABLES Submit this assignment. RESPONSIBLE PARTIES This is an individual assignment. Part I ( 50 points ) 1. The job outlook for civil engineering engineering graduates is rosy. As a result, the city of College Station must plan for a new aluminum recycling plant because of the alarming rise in craft beer consumption packaged in aluminum cans and the resulting waste stream impacts. The city has asked you to review two proposed recycling plant designs and construction and annual maintenance costs as shown below. Year (t) Design No. 1 ($1000s) Design No. 2 ($1000s) 0 1-20(each yr) 1,250 100 (O&M) 1,030 135 (O&M) Both designs will be constructed by March 2025, last 20 years, and because of the wear and tear of the recycling process, the facilities have no salvage value. The Federal government will subsidize 50% of the initial capital cost, and has a policy to subsidize 8% of the annual maintenance cost of capital recycling costs incurred by local governments. The City of College Station will seek a loan to finance 25% of the initial capital cost at a borrowing rate of 8% with 20 equal annual payments including principal and interest. The MARR for this type of project is 15% reflecting its operating risk (Hendrickson chapter 6; http://pmbook.ce.cmu.edu/ ) a) What is the uniform annual revenue that must be collected in the next 20 years to make each of the two designs worthwhile from the view of the City of College Station? ( 20 points ) DESIGN A - INITIAL COST (P = 1,250) Federal Subsidy 50% .5 * P = 625 LOAN 25% .25P(A/P,8%,20) = 31.8
2 Initial Payment 25% .25P(A/P,15%,20) = 49.9 - OM (A=100) Federal Subsidy 8% .08A = 8 Atot = (100-8) + 31.8 + 49.9 173.7 DESIGN B - INITIAL COST (P = 1,030) Federal Subsidy 50% .5 * P = 625 LOAN 25% .25P(A/P,8%,20) = 26.2 Initial Payment 25% .25P(A/P,15%,20) = 41.1 - OM (A=135) Federal Subsidy 8% .08A = 10.8 Atot = (135-10.8) + 26.2 + 41.1 191.5 b) Which design has a lower cost from this perspective? ( 20 points ) - Design A has the lower cost from this perspective because it has the lower annual revenue needed to make the project profitable. c) Should the City give consideration to the idea that the job market may significantly change before March 2024? In other words, what happens if beer drinking in Paris goes way up or way down? ( 5 points ) - Future considerations should be made. - If aluminum becomes scarce or increases in price, then the consumption of beer in aluminum cans will decrease defeating the need for this project - The revenue decreases if consumption decreases and increases if consumption increases. - Beer consumption directly correlates to the viability of this project and since the lifetime is 20 years considerations for the future must be made to ensure that the project can/will be profitable. d) What other ways could the worth of the above project be financially assessed? ( 5 points ) - Annual average rate of return (IRR) o IRR > MARR (viable project) o IRR < MARR (not viable) o IRR = MARR (breakeven) - Net Present Value (NPV) o NPV > 0 (viable) o NPV < 0 (not viable)
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