A large company must build a bridge to have access to land for expansion of its manufacturing plant. The bridge could be fabricated of normal steel for an initial cost of $30,000 and should last for 15 years. Maintenance will cost $1000 per year. If the steel used were more corrosion resistant, the annual maintenance cost would be only $100 per year, although the life would be the same. In 15 years there would be no salvage value for either bridge. The company pays combined federal and state taxes at the 32% marginal rate and uses straight-line depreciation. If the minimum attractive after-tax rate of return is 12%, what is the maximum amount that should be spent on the corrosion-resistant bridge?
A large company must build a bridge to have access to land for expansion of its manufacturing plant. The bridge could be fabricated of normal steel for an initial cost of $30,000 and should last for 15 years. Maintenance will cost $1000 per year. If the steel used were more corrosion resistant, the annual maintenance cost would be only $100 per year, although the life would be the same. In 15 years there would be no salvage value for either bridge. The company pays combined federal and state taxes at the 32% marginal rate and uses straight-line
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