1. To remedy the traffic situation at a busy intersection in San Fernando City, two plans are being considered. Plan A is to build a complete clover-leaf costing P9,200,000 which would provide for all needs during the next 30 years. Maintenance costs are estimated to be P24,000 a year for the first 15 years and P42,000 a year for the second 15 years. Plan B is to build a partial clover-leaf at a cost of P6,500,000 which would be sufficient for the next 15 years. At the end of 15 years, the clover-leaf will be completed at an estimated cost of P7,500,000. Maintenance would cost P16,800 a year during the first 15 years and P36,000 a year for the second 15 years. If money is worth 18%, which of the two plans would you recommend?

1. To remedy the traffic situation at a busy intersection in San Fernando City, two plans are being considered. Plan A is to build a complete clover-leaf costing P9,200,000 which would provide for all needs during the next 30 years. Maintenance costs are estimated to be P24,000 a year for the first 15 years and P42,000 a year for the second 15 years. Plan B is to build a partial clover-leaf at a cost of P6,500,000 which would be sufficient for the next 15 years. At the end of 15 years, the clover-leaf will be completed at an estimated cost of P7,500,000. Maintenance would cost P16,800 a year during the first 15 years and P36,000 a year for the second 15 years. If money is worth 18%, which of the two plans would you recommend?

ENGR.ECONOMIC ANALYSIS

14th Edition

ISBN:9780190931919

Author:NEWNAN

Publisher:NEWNAN

Chapter1: Making Economics Decisions

Section: Chapter Questions

Problem 1QTC

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Question

1.
To remedy the traffic situation at a busy intersection in San Fernando City, two plans are being
considered. Plan A is to build a complete clover-leaf costing P9,200,000 which would provide for all needs
during the next 30 years. Maintenance costs are estimated to be P24,000 a year for the first 15 years and
P42,000 a year for the second 15 years. Plan B is to build a partial clover-leaf at a cost of P6,500,000 which
would be sufficient for the next 15 years. At the end of 15 years, the clover-leaf will be completed at an
estimated cost of P7,500,000. Maintenance would cost P16,800 a year during the first 15 years and P36,000
a year for the second 15 years. If money is worth 18%, which of the two plans would you recommend?

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