ENGINEERING ECONOMICS &
INFRASTRUCTURE
(CIVN2016A)
Tutorials on economic analysis
Prof David Omole
School of Civil & Environmental Engineering
University of the Witwatersrand
September 2025
Example 6.4
• A $40,000,000 project taking four years to construct is financed by
borrowing $10,000,000 at the beginning of each year of construction.
How much is owed at the end of construction? What annual net
income is required to repay these costs over a 20-year operating
period? Assume 7% interest rate for all calculations. Repeat the
calculation for 8% interest rate.
2
Example 6.5
• A government agency constructs a project costing $40,000,000 and
this results in net income of $8,000,000 per year. The agency would
like to undertake a project expansion but cannot legally do so until
debts are cleared. How much would be available for expansion at the
end of 10 years? How much at the end of 25 years? Assume 7%
interest rate for all calculations.
3
Example 6.6
• An agency obtains $20,000,000 in order to construct a project by
borrowing five equal beginning-of-year amounts. The project is then
operated for 20 years. At the end of the first year of operation, the
project is credited with $5,000,000 of revenues, and the revenues
increase by $100,000 per year for each year of operation. Estimate
the present worth of the revenues and costs, and the average net
revenues (with the effect of interest) over the 25 years of
construction and operation. Assume 7% interest rate for all
calculations
4
Example 6.7
To construct an extension to its system, a public utility borrows
$12,000,000 with terms of 20 years at a 7% interest rate.
(a) What are the equal annual payments for this loan?
(b) After five years, the utility has a financial emergency and
receives permission from its creditors to suspend payments on
its loan for five years. What are the amounts owed at the
beginning and end of this 5-year period?
(c) What equal annual payments would be required to complete
the payback of the loan by the originally scheduled date?
5
Example 6.8
A new pipeline is to be installed. Alternative sizes considered are 8, 12,
and 16-inch diameter. For 8-inches, the construction cost is $20,000
and the annual OMR, including pumping cost is $5000. For 12-inches,
the costs are $25,000 and $800, respectively, and for 16-inches, the
costs are $40,000 and $200, respectively. What is the economic size of
pipeline if it is needed for 10 years and there is no salvage value at the
end of that time? The applicable discount rate is 10%.
6
Example 6.9
Projects A and B are to be compared in terms of the present worths of
their net benefits (benefits minus costs). Project A requires one year for
construction and costs $100,000. It provides 5 years of benefit after
construction, and these benefits increase from $20,000 to $100,000
annually. Project B requires 2 years for construction and costs
$200,000. It provides 10 years of benefit after construction and , and
these benefits increase from $40,000 to $200,000 annually. All
amounts are end-of-year values. Which project is better? Perform
calculations using a discount rate of 10%