National Highways Authority (NHA) is considering apublic-private partnership with Friends construction as maincontractor using a DBOMF contract for a new 50-mile motorway on theoutskirts of Baluchistan Province. The design includes seven10-mile-long commercial/retail corridors on both sides of the road.Motorway construction is expected to require 6 years at an averagecost of $4 million per mile. The discount rate is 11% per year, andthe study period is 30 years. Initial investment is $200 milliondistributed over 5 years; $50 million now and in year 6 andremaining amount equally in rest of the years. Annual operatingcost is $10 million per year, plus an additional $5 million everysix years. Annual revenues Include tolls and retail/commercialgrowth; start at $5 million in first year, increasing by a constant$2 million annually through year 10, and then increasing by aconstant $3 million per year through year 20 and remaining constantthereafter. Disbenefits include loss of income to people insurrounding areas; start at $15 million in year 1, decrease by $2million per year through year 21, and remain at zerothereafter.

Required: Evaluate the economics of theproposal using (a) the modified B/C analysis from the NHA’sperspective and (b) the profitability index from the Friendsconstruction viewpoint in which disbenefits are included and notincluded.