Argentina is considering constructing a bridge across the Rio de la Plata to connect its northern coast to the southern coast of Uruguay. If this bridge is constructed, it will reduce the travel time from Buenos Aires, Argentina, to Sao Paulo, Brazil, by over 10 hours and has the potential to significantly improve the flow of manufactured goods between the two countries. The cost of the new bridge, which will be the longest bridge in the world, spanning over 50 miles, will be $700 million. The bridge will require an annual maintenance of $10 million for repairs and upgrades and is estimated to last 80 years. It is estimated that 550,000 vehicles will use the bridge during the first year of operation, and an additional 50,000 vehicles per year until the tenth year. These data are based on an a toll charge of $90 per vehicle. The annual traffic for the remainder of the life of the bridge life will be 1,000,000 vehicles per year. The Argentine government requires a minimum rate of return of 9% to proceed with the project.
(a) Does this project provide sufficient revenues to offset its costs?
(b) What considerations are there besides economic factors in deciding whether to construct the bridge?
This question was answered on: Jul 11, 2017
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