The state may eliminate a railroad grade crossingby

Chapter , Problem 16-10

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The state may eliminate a railroad grade crossingby building an overpass. The new structure, togetherwith the needed land, would cost $1.8 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 (actu-ally, the net value of the land on either side of therailroad tracks) 30 years hence is estimated to be$100,000. A 6% interest rate is to be used.About 1000 vehicles per day are delayed by trainsat the grade crossing.Trucks represent40%,and 60%are other vehicles. Time for truck drivers is valuedat $18 per hour and for other drivers at $5 per hour.Average time saving per vehicle will be 2 minutes ifthe overpass is built. No time saving occurs for therailroad.The railroad spends$48,000annually for crossingguards. During the preceding10-year period, the rail-road has paid out $600,000 in settling lawsuits andaccident cases related to the grade crossing. Theproposed project will entirely eliminate both theseexpenses. The state estimates that the new overpasswill save it about $6000 per year in expenses directlydue to the accidents.Theoverpass,ifbuilt, will belongto the state.Should the overpass be built? If the overpass isbuilt, how much should the railroad be asked tocontribute to the state as its share of the $1.8 millionconstruction cost?