## Friday, April 25, 2014

### Highway Economics and Finance - Part 2 (Highway Costs)

Hi,
In first part of this topic we have discussed about the various highway user benefits and highway operation costs. Being continuation of the same topic in this 2nd part we are going to discuss the highway costs.

• Highway Costs

In general the total highway cost for road user benefit analysis is the sum of the capital costs expressed on an annual basis and the annual cost of maintenance.  This total cost for highway improvement is obtained from the estimate prepared from the preliminary plans.
The total cost of highway improvement project is calculated from the following components:

1. Right of Way
2. Grading, drainage and minor structure
3. Major Structures like bridges
4. Pavement and appurtenances
5. Annual cost of maintenance and operation
• Annual Highway cost:
The annual cost is considered in the economic analysis of highway projects. Instead of considering the overall cost of a project the annual repayment of a capital loan plus the interest over a specified period of time of the annual capital cost is considered in the analysis.

Cr = P[ {i(1+ i)^n}/{(1+ i)^n - 1}] = P (CRF)

Here, Cr = Receipt in a uniform series for n periods to cover P at a rate of interest i
P = First cost of improvement of an element of a highway.
i = rate of interest per unit period
n = period of time in number of interest periods
CRF = Capital Recovery Factor

In case Sv or salvage value is also there, then the above equation can be re-arranged as
Cr = (C-Vs)[ {i(1+ i)^n}/{(1+ i)^n - 1}]  + i.Vs = P (CRF) + i.Vs