1.

TABLE 1 DATA REQUIRED FOR ECONOMIC ANALYSIS

Description

Data

Accidents rates

0.75 per 106 vehicle-kilometres (existing road)

0.25 per 106 vehicle-kilometres (proposed road)

Average cost of accident

TShs. 7,500,000/=

Average cost of vehicle time saving

TShs. 1750/= per hour

Average speed on existing road

45km/hour

Average speed on proposed road

85km/hour

Discount rate

8%

Average vehicle operating cost

((2 + 25/v + (0.00001v2)) /100 TShs per km

TABLE 2: COSTS AND FLOWS FOR EACH YEAR OF OPERATION OF HIGHWAY

YEAR

Predicted flows
(106 veh-km/year)

Construction Costs
(x 1,000 TShs)

10,000,000

5,000,000

Operating Costs
(x 1,000 TShs)

200

250,000

210

250,000

220

250,000

230

250,000

240

250,000

250

250,000

260

250,000

10

270

250,000

11

280

250000

12

290

250,000

13

300

250,000

14

310

250,000

CALCULATION
Accident saving cost =

Accident saving cost = (0.75 0.25) X 7,500,000 X yearly flow

Accident cost saving = 3750000 x yearly flow

Table 3: ACCIDENT SAVING COSTS

Note: Value in the table:
Accident cost saving = 3750000 x yearly flow
YEAR

PREDICTED YEARLY FLOW (veh-km/year)

Accident saving cost /= (Tshs)

1
2
3
4
5
6
7
8
9
10
11
12
13
14

200
210
220
230
240
250
260
270
280
290
300
310

750000000
787500000
825000000
862500000
900000000
937500000
975000000
1012500000
1050000000
1087500000
1125000000
1162500000

 Operating cost saving

Vehicle operating cost = ((2 + 25/v + (0.00001v2)) /100 TShs per km
V = 45km/hour (Existing road)
Vehicle operating cost for Existing road = ((2 +

+ (0.00001 45 ))/100 = 0.025758 /

veh-km

Vehicle operating cost for the proposed road = ((2 +

+ (0.00001 85 ))/100

= 0.0236637 Tshs./ Veh-km

Vehicle operating cost saving = (Operating cost (Existing) Operating cost (Proposed)) x Flow
= (0.025758 0.0236637) x Flow
= 0.0020943 x Flow /= (Tshs.)

TABLE 4: OPERATING COST SAVING

YEAR
1
2
3
4
5
6
7
8
9
10
11
12
13
14

PREDICTED YEARLY
FLOW (veh-km/year)

200
210
220
230
240
250
260
270
280
290
300
310

Operating cost savings

418860
439803
460746
481689
502632
523575
544518
565461
586404
607347
628290
649233

TRAVEL TIME SAVING

Time taken for vehicle to traverse = 1/45 = 0.22222 hr per km
Time taken for vehicle to traverse (Proposed road) = 1/85 = 0.011765 hr per km
Time saved = Time taken (existing road) - Time taken (proposed road)
= 0.022222 0.011765 = 0.010458 hr per km
Amount saved = 0.010458 hr per veh - km X TShs. 1750/= per hour = 18.3Ths. Per veh-km

Cost of Travel time saving = Amount saved per veh- km X Yearly flow
= 18.3 x Flow Tshs

TABLE 5: TRAVEL TIME COST SAVINGS

YEAR

PREDICTED YEARLY
FLOW (veh-km/year)

1
2
3
4
5
6
7
8
9
10
11
12
13
14

Travel time cost savings

200
210
220
230
240
250
260
270
280
290
300
310

3660000000
3843000000
4026000000
4209000000
4392000000
4575000000
4758000000
4941000000
5124000000
5307000000
5490000000
5673000000

Total benefits per year = Accident cost saving + Operating cost saving + Travel saving

Discounted benefits =

TABLE : TOTAL BENEFITS ANDD DISCOUNTED BENEFITS

YEAR
1
2
3
4
5
6
7
8
9
10
11
12
13
14

Total benefits (Tshs.)

Discounted benefits (Tshs.)

4410418860
4630939803

3501132687
3403879002

4851460746
5071981689
5292502632
5513023575
5733544518
5954065461
6174586404
6395107347
6615628290
6836149233

3301822665
3196208809
3088124453
2978515097
2868199723
2757884349
2648174272
2539585116
2432552793
2327442487

Sum of the discounted benefits = 35043521452 /= Tshs.

DISCOUNT OF COST
Discounted Cost yearn =

Discounted cost (year 1)

Discounted cost (year 2)

)
(

= 9259259259 /= Tshs
= 4286694102 /= Tshs

Discounted operating cost

YEAR

Operating costs /= (Tsh.)

Discounted costs /= (Tshs)

1
2
3
4
5
6
7
8
9
10
11
12
13
14

250000000
250000000
250000000
250000000
250000000
250000000
250000000
250000000
250000000
250000000
250000000
250000000

198458060
183757463
170145799
157542407
145872599
135067221
125062242
115798372
107220715
99278439.7
91924481.2
85115260.3

TOTAL DISCOUNTED OPERATING COST

1615243059

Sum of discounted costs = 9259259259 + 4286694102 +1615243059

Sum of discounted costs = 15161196420 /= (Tshs.)
i.

NET PRESENT VALUE (NPV)

Net present value = Discounted benets - Discounted costs

Net Present Value = 19882325032 /= (Tshs.)

ii.

INTERNAL RATE OF RETURN

Net cash flow = Net project benefits + Net project costs

YEAR

COSTS /= (Tsh.)

1
2
3
4
5
6
7
8
9
10
11
12
13
14

-10000000000
-5000000000
-250000000
-250000000
-250000000
-250000000
-250000000
-250000000
-250000000
-250000000
-250000000
-250000000
-250000000
-250000000

YEAR

NET CASH FLOWS

/= (Tsh.)
1
2
3
4
5
6
7
8
9
10
11
12
13
14

-10000000000
-5000000000
4160418860
4380939803
4601460746
4821981689
5042502632
5263023575
5483544518
5704065461
5924586404
6145107347
6365628290
6586149233

NET PRESENT VALUE

(NPV)

NET CASH FLOWS

BENEFITS /= (Tshs)

4410418860
4630939803
4851460746
5071981689
5292502632
5513023575
5733544518
5954065461
6174586404
6395107347
6615628290
6836149233

/=
(Tsh.)
-10000000000
-5000000000
4160418860
4380939803
4601460746
4821981689
5042502632
5263023575
5483544518
5704065461
5924586404
6145107347
6365628290
6586149233

DISCOUNTED NET CASH FLOW

i = 15%
i = 20%
-8695652174 -8333333333
-3780718336 -3472222222
2735542934 2407649803
2504816551 2112721741
2287739231 1849223872
2084675751 1614871911
1895663513 1407269941
1720491742 1224011074
1558765591 1062747664
1409957745 921238417.1
1273449695 797378150.5
1148564502 689214683.3
1034592559 594956312.2
930811632.4 512972545.8

8108700937

3388700561

i= 25%
-8000000000
-3200000000
2130134456
1794432943
1507806657
1264053568
1057489448
882988833.3
735988886.6
612469365.2
508918097
422288561.4
349954116.1
289661906.6

i= 30%
-7692307692
-2958579882
1893681775
1533888800
1239307163
998999896
803605068.8
645191291.6
517096029.3
413762357.7
330583491.5
263760189.5
210173373.5
167272533.5

i= 35%
-7407407407
-2743484225
1690969409
1318961782
1026187875
796568165.2
617034936
477051392
368177680.3
283691821.6
218266248.6
167696597.8
128677402.2
98618594.35

356186838.9

-1633565604

-2958989728

Thre graph of Npv (/=Tshs) against IRR (%)

10,000,000,000
8,000,000,000
N
P
V

6,000,000,000
4,000,000,000
2,000,000,000
0
10

15

20

25

30

35

40

-2,000,000,000
-4,000,000,000

INTERNAL RATE OF RETURN (%)

From the graph the internal rate is 25.7 %

SENSITIVITY ANALYSIS

Sensitivity analysis is a technique used to determine how different values of an

independent variable impact a particular dependent variable under a given set of
assumptions
i.

Effect on reduction of time savings in the economic performance of the proposed

highway
Independent variable Time cost savings
Dependent variable - Benefit- costs ratio
Note: the travel time
Total discounted costs = 15161196420 /= (Tshs.)

`YEAR

Discounted (accidents +
operating cost savings) /=

1
2
3
4
5
6
7
8
9
10
11
12
13
14
TOTAL DISCOUNTED
VALUE

Discounted travel time cost

savings

595706685.3
579159277.4

2905426002
2824719724

561794713.5
543824849
525434636.7
506784950.5
488015137.5
469245324.5
450578500.9
432102398.4
413891186.2
396006999.1
5962544659

2740027951
2652383960
2562689816
2471730147
2380184586
2288639025
2197595771
2107482717
2018661606
1931435488
29080976793

Discounted benefits =disc.( Accident cost savings + Operating cost saving +

Travel

time cost savings)

Discounted benefits = 5962544659 +

x (29080976793) (Tshs. /=)

Values of different BCR for different value of percent reduction in Travel time cost
savings

% x reduction in travel time

savings cost
20
40
60
68.37

Discounted benefits

Discounted
costs

BCR

29227326093
23411130735
17594935376
15161196420

15161196420
15161196420
15161196420
15161196420

1.93
1.54
1.16
1.00

CONCLUSION ON THE EFFECT OF REDUCTION OF THE TRAVEL TIME

SAVINGS COST
Sensitivity analysis on the reduction of travel time cost savings indicate high performance of the
proposed project as the travel time cost savings can be reduced to 68.37% and still provide the
BCR 1. This explains that the travel time costs savings can be reduce over half of its benefits
and still the project viability is high.
ii.

Sensitivity analysis 2 : Effect of delay on start of benefits on the benefits cost

ratio

Delay the benefits by n years = Discounted benefits bene its for year n

Effects of delay in the start of benefits for n years

Delays in the start of all
benefits( years)
1
2
3
4
5
6
7

Discounted benefits
31542388764
28138509762
24836687098
21640478289
18552353836
15573838739
12705639016

Discounted
costs
15161196420
15161196420
15161196420
15161196420
15161196420
15161196420
15161196420

BCR
2.08
1.86
1.64
1.43
1.22
1.03
0.84

CONCLUSION ON EFFECT OF DELAYS IN THE START OF THE BENEFITS

ON BENEFIT COST RATIO

The effect of delays in the benefits on the Benefits costs ratio indicate high performance of the
propose at the projects benefits can be delayed up to 6 years and still effect low on the Benefitcost ratio of 1.03 which is greater than one. Thus a project total benefit can be delayed in 6 six
years and produce an allowable BCR 1.

OVERALL CONCLUSION

i.

ii.

iii.

The net present value is greater than zero (NPV > 0) this indicate the
acceptance of the proposed project as the discounted benefit is > discounted costs.
The proposed project indicates a high performance; hence the proposed project
should be implemented.
The BCR of the project is 2.31 > 1. The proposed project should be accepted as
it shows high performance of the benefits to be greater than the costs of
implementing the project.

The internal rate of return (=25.7%) is greater than the expected rate of ( 8%).
The proposed project indicates high profits of investment and therefore it should
be implemented.

iv.

The sensitivity analysis indicates high performance as the the travel time
cost savings can be reduced to 68.37% and still provide the BCR 1.
This explains that the travel time costs savings can be reduce over half of
its benefits and still the project viability is high.

The effect of delays in the benefits on the Benefits costs ratio indicate high
performance of the propose at the projects benefits can be delayed up to 6
years and still effect low on the Benefit-cost ratio of 1.03 which is greater
than one. Thus a project total benefit can be delayed in 6 six years and
produce an allowable BCR 1.