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The Haverty County Transportation Authority (HCTA) has just installed a new software to charge and track toll fees. The director wants to know the total equivalent cost of all future costs incurred to purchase the software system. If the new system will be used for the indefinite fu- ture, find the equivalent cost (a) now, a CC value, and (b) for each year hereafter, an AW value. The system has an installed cost of $150,000 and an additional cost of $50,000 after 10 years. The annual software maintenance contract cost is $5000 for the first 4 years and $8000 thereafter. In addition, there is expected to be a recurring major upgrade cost of $15,000 every 13 years. Assume that i = 5% per year for county funds. Solution (a) The five-step procedure to find CC now is applied. 1. Draw a cash flow diagram for two cycles (Figure 5-5). 2. Find the PW of the nonrecurring costs of $150,000 now and $50,000 in year 10 at i = 5% Label this CC CC, - -150,000 - 50,000(P/F,5%,10) - S-180,695 10 12 14 20 26 Year $5000 $5000 $15.000 $15.000 15% per year 550.000 3 and 4. Convert the $15,000 recurring cost to an A value over the first cycle of 13 years, and find the capitalized cost CC at 5% per year using Equation (5.1]. A = -15,000(A/F,5%,13) = $-847 CC, = --847/0.05 = $-16,940 There are several ways to convert the annual software maintenance cost series to A and CC values. A straightforward method is to, first, consider the S-5000 an A series with a capitalized cost of CC, - --5000/0,05 = S-100,000 Second, convert the step-up maintenance cost series of S-3000 to a capitalized cost CC, in year 4, and find the PW in year 0. (Refer to Figure 5-5 for cash flow timings.) CC (P/F,5%,4)= $-49,362 --3000 0.05 5. The total capitalized cost CC, for the Haverly County Transportation Authority is the sum of the four-component CC values CC, = -180,695 - 16,940 - 100,000 - 49,362 5-346.997 = -100,095 - 10,940 - 100,000 - 49,302 = S-346,997 (b) Equation (2) determines the AW value forever. AW = Pi=CC_(1) = $346,997(0.05) = $17,350 Correctly interpreted, this means Haverty County officials have committed the equivalent of $17,350 forever to operate and maintain the toll management software. Provide full explanation why each step is taken in the solution. Suggest if there is any other way of performing the economic analysis for this situation. Your explanation must be backed up with equations relevant to this particular problem. 5 pts

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