Faculty of Engineering, Architecture and Science

Department of Civil Engineering

CVL 316
Transportation Engineering
Winter 2017

Yoassry Elzohairy, Ph.D., P.Eng.

Thursday, March 9, 2017

 Engineering Economic Analysis

Used to estimate economic feasibility and
determine preferred design.

Must convert time streams of benefits & costs to
equivalent values given a time period.

Net Present Worth (NPW) or Net Present Value
(NPV)= Present Value of Benefits minus Present
Value of Costs
NPV = [PVB PVC] > 0

Benefit Cost Ratio (BCR)
B/C = PVB/PVC > 1

Textbook pp 558-570
2
 Interest and Discount Rates

Interest = premium paid or received for use of
money

Interest rate relates sum of money presently
on hand to an equivalent sum at a future date.
Thus, given P (present value) what is F (future
value)?

Discount rate relates sum of money at a future
date to its equivalent value at present. Thus,
given F what is P?

Used to compare time streams of benefits and
costs
3
Simple vs. Compound Interest

4
Simple vs. Compound Interest
Future value, F, for P = $1000 at 8%
Periods F, simple i F, compound i
1 $1080 $1080
2 $1160 $1166
3 $1240 $1260
4 $1320 $1360
5 $1400 $1469
10 $1800 $2159
15 $2200 $3172
20 $2600 $4661
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6
 Nominal (r) vs. Effective (r*)
Interest Rates

Compounding at other intervals than yearly;
e.g., daily, monthly, quarterly.

Quarterly compounding of an interest rate r for

a year applied to an amount A results in
(1+r/4)4 A in a year. In this case, r* satisfying
1 + r* = (1+r/4)4 is called the effective interest rate and r
is nominal rate

Example r = 0.08, r/4 = 0.02, 1+ r* = (1.02)4 =

1.0824, r* = 0.0824 is the effective interest
rate. Note r* > r.
7
 Relation Between Nominal and
Effective Interest Rates
Given the annual nominal rate r compounded m
times a year, we can find the annual effective rate
i from the relation

8
 Example
Compute the equivalent of $1,000,000 at the end of 5
years if the annual interest rate is 8% compounded
semi-annually. Calculate the effective annual interest
rate.
Solution:
m =2 interest periods per year
r= 0.08
i=? 2
0.08
i = 1 + 1 = 0.0816
2 or 8.16% per year

9
Continuous Compounding
Continuous compounding represents the case when the
interest period approaches zero.
Given a nominal interest rate r under continuous
compounding , the effective interest rate would be the
limit of i as the number of interest periods m
approaches infinity.
m
r
(m ) 1 + e r
m

r
i = e 1
10
 Continuous Compounding:
Relation Between Present Value
and Future Cash Flow
When interest is compounded continuously at a nominal
interest rate r per a specified period, the relationship
between future and present value separated by n periods
is

The multiplier of P is known as the single-sum

compound-amount factor (CAF, r, n) and the multiplier
of F is called the single-sum present-worth factor (PWF,
r, n).

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 Example
Compute the equivalent of $1,000,000 at the end of 5
years if the annual interest rate is 8% compounded
continuously. Calculate the effective annual interest
rate.

e 0.08 = 1.0833

12
 Cash Flow Diagram (CFD)

Graphic tool showing size, sign, and timing of

cash flows --- helpful for engineering
economic analysis

Horizontal line indicating uniform units of

time (days or months or years or )

Each cash flow in (revenue or benefit) is

shown as an arrow up (positive) from time

line

Each cash flow out (cost) is shown as an

arrow down (negative) from time line

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 Cash Flow Diagram (CFD) sample

$3000
$2000 $2000
$1500 $1500
Money in
(+) 0 1 2 3 4 5 6
Money out
(-)
Time 0 or End of period 3 is
Today (usually) also beginning of
period 4
$3000
$4000
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The Equivalent Single Sum Ek
of a Cash Flow at Time K

* = the effective interest rate i or the nominal interest rate r

15
Example

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17
 Equal Series of Payments

Fig. A

Fig. B. Present single-payment equivalent

Fig. C. Future single-payment equivalent

Discrete Compounding Factors

Note:
Example

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 Superposition of Cash Flows

To identify the simplest way of solving a
problem of complex cash flow, consider several
possible ways of decomposing and superposing
the cash flow single-payment components.
Example
Given benefits of $10 million that occur at the end of
each of the first five years and benefits of $6 million
that occur at the end of years six to nine, what is
the present value? Assume an interest rate of 8%
per year.

21
Solution

22
i= 0.08 0.08
S= 6,000,000 4,000,000
n= 9 5
P= 37,481,327.47 15,970,840.15 53,452,167.61

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Homework

26
 Design Hourly Volume(DHV)

Designs are typically based on the 30th

highest hourly volume in a year
(abbreviated as 30 HV).

This would be a big pain to obtain for
most projects

More practical, is determining what %
of Average Daily Traffic (ADT) the
design hour accounts for.

Textbook pp150-152
27
Relationship
of Highest
Hourly
Volume and
ADT on
Rural
Arterials
K-Factor
Concept

28
 A Few Terms Explained

The curve steepens quickly to the left of the

point showing 30th highest hour, indicating
much higher volumes if we include only a few
more of the hourly volumes.

The curve flattens to the right, indicating
many hours in which the volume is not much
less than 30 HV.

29
K-Factors

Typically between 8 and 13%

Often Agencies have there own K-tables

Reasonable applications

Estimating number of lanes

Poor applications

Estimating design volumes at signalized
intersections (signal design is very sensitive to
turn %)

30
 Peak Hour Factor

Accounts for the variation in the traffic stream within
an hour

Relationship between peak 15 minutes and peak
hour Table 2.2 Traffic volumes and flow rates on I-35W

V 15 minutes beginning Vehicle Count Flow rate

PHF = 7:20 AM 389 vehicles 1556 vph
4 V15 7:35 AM 495 vehicles 1980 vph
7:50 AM 376 vehicles 1504 vph
1623 8:05 AM 363 vehicles 1452 vph
PHF = = 0.82 7:20-8:20AM 1623 vehicles 1623 vph
4 (1980 / 4 )
1623
PHF = 4 = 0.82
(495) 31
 PHF

PHF <=1.0

PHF >=0.25 (all Traffic

vehicles in peak
Count
V
15 minutes) 50
40
30 30

Facilities operating
near capacity have One Hour

PHF near 1.0

Traffic
q
Count

V
PHF = 50 50 50 50

q
One Hour
32
Example for calculating PHF

Assume 100, 150, 320, 50 vehicles are

counted during four 15-min intervals

PHF =
(100 + 150 + 320 + 50 )
=
620
= 0.48
320 * 4 1280

Assume the extreme case where 250 vehicles are
counted during a 15-min interval and no vehicles
were observed during the rest of the hour

PHF =
(250 )
=
250
= 0.25
250 * 4 1000 33
 Basic Terminology

Volume

Number of vehicles passing a point on a
highway or highway lane during ONE HOUR,
expressed as vehicles per hour

Flow rate

Number of vehicles passing a point on a
highway or highway lane during SOME PERIOD
OF TIME LESS THAN ONE HOUR, expressed as
an equivalent rate in vehicle per hour

34
 Peak Hour/PHF Determination
Good Exam Topic
Start Stop 15 Min 1 Hour
Count Sum
0730 0745 25 115
0745 0800 30 120
PHF=125/4*35
0800 0815 35 125 = 0.89

0815 0830 25 100

0830 0845 30
0845 0900 35
0900 0915 10
35
Average Annual Daily Traffic
(AADT)

It is the average 24-hour traffic volume

at a given location over a full 365-day
year - that is, total number of vehicles
passing the site in a year divided by 365

36
AADT to Design Flow Rate
Design Flow Rate = AADT K D PHF

K Percent of AADT that approximates

design hour volume

D Proportion of Design Hour Volume
traveling in the predominant direction

PHF Ratio of Design Hour Volume to peak
15-minute flow rate in the Design Hour

37
Homework

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