EV303 HIGHWAY ENGINEERING

6_ ECONOMIC ANALYSIS

Prepared by Ir. Ben Lee See Kim

Civil Engineering Department
UCSI University
July 2016

Two alternative highway designs (A and B) are being

considered as improvement to the current interchange
between two cities in Selangor. For these 2 alternatives, the
information are given in Table Q below: Assume the road is
two-way, and the benefits grow at an equal annual rate of 2%.
Using 20-year economic analysis:

Evaluate both alternatives using Net Present Value and

Benefit-Cost Ratio method:

Construction
inception

cost

incurred

at

Alternative
A

Alternative
B

RM 2,500,000

RM 3,800,000

4%

4%

Interest rate
One-way user benefit during the first
year

RM 150,000

RM 175,000

Residual value at the end of analysis

year

RM 400,000

RM 550,000

Reduction in annual maintenance

cost after improvement

RM 3,000

RM 4,000


Construction cost incurred at inception
Interest rate
One-way user benefit during the first year
Residual value at the end of analysis year
Reduction in annual maintenance cost
after improvement
Present worth factor, PWg

Alternative A

Alternative B

RM 2,500,000

RM 3,800,000

4%

4%

RM 150,000

RM 175,000

RM 400,000

RM 550,000

RM 3,000

RM 4,000

=16.484

Same = 16.484

Present value of user benefit

For two-way road, the present user benefit
needs to multiply 2
PV of annual maintenance cost reduction

(from table on slide 5)

= RM 40,770.90

= RM 54,361.20

PV of residual value { P = (1 / (1 + r)n) }

(from table on slide 5)

= RM 182,560

= RM 251,020

4,944,000 (2,500,000 40,770.90

182,560)
= RM 2,667,330.90

5,768,000 (3,800,000 54,361.20

251,020)
= RM 2,273,381.20

4,944,000 / (4,944,000 - 2,667,330.90) =

4,944,000 / 2,276,669.10

5,768,000 / (5,768,000 2,273,381.20)

5,768,000 / 3,494,618.80

Net Present Value

B/C Ratio

 Compare

B/C for (B A);

PV (U) = 5,768,000 4,944,000 = RM 824,000

PV (I) = 3,800,000 2,500,000 = RM 1,300,000
PV (M) = 54,361.20 40,770.90 = RM 13,590.30
PV (R) = 251,020 182,560 = RM 68,460
B/C = PV (U)/ PV (I) PV (M) PV (R) = 0.68 < 1
Since B/C for (B A) is lesser than 1, alternative A is chosen and economically
desirable.

DETERMINE WHICH OF THE TWO IS

MORE ECONOMICALLY DESIRABLE

Years, n

4%

6%

PW

SPW

PW

SPW

0.8219

4.4518

0.7473

4.2124

10

0.6756

8.1109

0.5584

7.3601

15

0.5553

11.1184

0.4173

9.7122

20

0.4564

13.5903

0.3118

11.4669

25

0.3751

15.6221

0.2330

12.7834

50

0.1407

21.482

0.0543

15.991

55

0.1157

22.109

0.0406

16.161