There are five essential items to be included in annual highway cost. They are administrative cost, highway operation cost, highway maintenance cost, highway capital cost and probable life and salvage value at end of that period. Tax levied is a source of highway finance.

It is necessary that any new proposal for highway improvement must be justified in terms of cost incurred and benefits derived. It is important for proposal to be such that re is no loss in it.

The formula to find annual cost is as below:
\(C=P \frac{i(1+i)^n}{(1+i)^n-1}\)
Using values given in question,
P = 145 lakhs i = 6% n = 15 years
\(C=145×\frac{0.06×(1+0.06)^{15}}{(1+0.06)^{15}-1}\)=14.93 lakhs

\(T=a+\frac{(b+c)}{speed}\) is equation that relates cost of vehicle operation to time for unit distance. In equation, ?a? represents running cost per unit distance that is independent of journey time, ?b? represents fixed hourly cost that is dependent on speed and ?c? represents portion of running cost dependent on speed.

Economic analysis is not concerned with source of financing; financial analysis considers it. Economic analysis is analysis of cost-benefit to road users and consequences to society of scheme and establishing economic viability.

The economic evaluation can be done using benefit-cost method. The ratio is given by:
\(\frac{B}{C}=\frac{R-R_i}{H_i-H}\)
In equation, R is total annual road user cost of existing pavement and R_i is road user cost of newly proposed highway. H is total annual highway cost of existing pavement and H_i is total annual highway cost of newly proposed highway.
Considering proposal A,
\(\frac{B}{C}=\frac{R-R_A}{H_A-H}\)
\(\frac{B}{C}=\frac{1382870-1022465}{265422-116940}\)=2.43
Now considering proposal B,
\(\frac{B}{C}=\frac{R-R_B}{H_B-H}\)
\(\frac{B}{C}=\frac{1382870-1053224}{330300-116940}\)=1.56
The ratio for both proposals is greater than 1. The proposal having highest ratio is preferred. So, proposal A must be taken forward.

Vidhan Sabha is a State Government administrative body and not a local body. The local bodies include municipalities, corporations, district boards and panchayats. The finance for highway in India is done at all three administrative levels ? Central, State and local bodies of Government.

Toll tax is one that is usually levied by local bodies for ir revenue. Vehicle tax, passenger tax and sales tax are sources of income and are collected by State Government.

The speed of vehicle is important in determining life of tyre. As speed of vehicle increases, wear of tyre increases and this decreases life of tyre. The rate of degradation varies with pavement surface type ? good quality, uneven, unsurfaced pavement.

\(R=\frac{0+A-M}{P×100}\) is correct formula used to find percentage of rate of return. Since it is a percentage, ratio must be multiplied with 100. O refers to savings in annual road user cost, A is annual savings in accident cost, M is additional maintenance cost per annum and P refers to capital cost of improvement.