Perfect Path Productions

3200 Chestnut Street Philadelphia, PA 19104 (215)-123-5544

May 7, 2014

George W. McAuley, Jr.Assistant District ExecutivePennsylvania Department of TransportationEngineering District 10Indiana, PA 15701

Dear Mr. McAuley:

A cost benefit analysis has been observed in regards to your recent request for quote to repair and repave the Pennsylvania Turnpike. As per your request, we have reached a suggestion for which of your two proposed options you should consider. The two methods of road surface reconditioning have been evaluated using long-term cost as the main driving factor. In your quote request, you presented the following two options:

Pavement A Pavement B

Initial Cost $500,000.00 $700,000.00

Annual Cost $35,000.00 $25,000.00

Periodic Resurfacing $350,000.00 $450,000.00

Resurfacing Interval 10 years 15 years

Since major highways are extremely long-term investments, it makes sense to assume the Turnpike has an infinite life period. In order to analyze which option is more ideal over the long haul, Capital Cost Analysis was performed. In this type of analysis, all costs (including initial costs, maintenance costs and interest rates) are generalized and presented in a way that informs you of the total cost to sustain the project indefinitely. By comparing the results of both options, it is possible to determine which is cheaper in the long run. The lower of the two capital costs is the option that will be suggested to you.

Using Capital Cost analysis at an interest rate of 12%, pavement option A has a capital cost of $957,920, while pavement option B has a capital cost of $1,008,830. Obviously, it would be more cost beneficial to go with the first option, since you would spend $50,910 less than you would with option B. Not only is the initial repaving cost much cheaper, but the cost to resurface the road is also cheaper. Going with option B would mean that you could wait an additional five years to resurface the pavement, but it would be more expensive. Also, since the Turnpike experiences high traffic volumes along with harsh climate changes throughout the year, it would help to repave the road every ten years instead of fifteen.

Perfect Path Productions strongly recommends PennDOT to proceed with pavement option A when considering repaving the Pennsylvania Turnpike. If you would like to see the technicalities of the Capital Cost analysis used, please see the attached appendix.

If you have any questions, please do not hesitate to contact me. If you would like to proceed with one of these two options, we would be glad to help. Contact Irene Schultz at ext. 2250 to set up a consultation with myself or any of our Project Managers.

Best Regards,

Peter Patrick, ext. 5067

Senior Project Manager

Perfect Path Productions

Appendix A

The governing equation for Capitalized Cost Analysis is the following:

Where D = initial cost, A = annual cost, i = interest rate of 12%, n = # of years and

F = the future cost of resurfacing.

In order to solve for F(A/F,i,n), you must use Appendix C of the Newnan textbook. You must find A given F(A/F), as the portion in the Capitalized Cost equation suggests. Using the table to find this value for an interest rate of 12% for 10 years, this value is 0.0570.

Substituting our known values from Option A into this equation, we get the following:

Similarly, we use the same equation to calculate Pavement B as we did pavement option A, but with changes according to the table on the first page of this report:

*

*Note that the Appendix C value for Pavement B is 0.0268, which is different than Pavement A.

Since , Pavement option A is the best option to choose.

Here are two cash flow diagrams that represent both possible options of pavements: