A small section of a highway can be dealt with in three different ways: (1) it can be left as it is (do nothing), (2) an embankment/bridge combination can be used; or (3) a cutting tunnel combination can be provided. Using whatever method is suitable, determine the alternative that has the best financial advantage. The interest rate for the investment is 5% per year. Alternative Life Initial cost Maintenance As is (do-nothing) Perpetual $35,000/yr Embankment/bridge Case (a) perpetual $170,000 $1,000/yr Case (b) 50 years $200,000 $2,000/yr Cutting tunnel Case (a) perpetual $75,000 $700/yr Case (b) 50 years $300,000 $2.000/vr

Essentials Of Investments
11th Edition
ISBN:9781260013924
Author:Bodie, Zvi, Kane, Alex, MARCUS, Alan J.
Publisher:Bodie, Zvi, Kane, Alex, MARCUS, Alan J.
Chapter1: Investments: Background And Issues
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A small section of a highway can be dealt with in three different ways: (1) it can
be left as it is (do nothing), (2) an embankment/bridge combination can be used;
or (3) a cutting tunnel combination can be provided. Using whatever method is
suitable, determine the alternative that has the best financial advantage. The
interest rate for the investment is 5% per year.
Alternative
Life
Initial cost
Maintenance
As is (do-nothing)
Perpetual
$35,000/yr
Embankment/bridge
Case (a) perpetual
$170,000
$1,000/yr
Case (b) 50 years
$200,000
$2,000/yr
Cutting tunnel
Case (a) perpetual
$75,000
$700/yr
Case (b) 50 years
$300,000
$2,000/yr
Transcribed Image Text:A small section of a highway can be dealt with in three different ways: (1) it can be left as it is (do nothing), (2) an embankment/bridge combination can be used; or (3) a cutting tunnel combination can be provided. Using whatever method is suitable, determine the alternative that has the best financial advantage. The interest rate for the investment is 5% per year. Alternative Life Initial cost Maintenance As is (do-nothing) Perpetual $35,000/yr Embankment/bridge Case (a) perpetual $170,000 $1,000/yr Case (b) 50 years $200,000 $2,000/yr Cutting tunnel Case (a) perpetual $75,000 $700/yr Case (b) 50 years $300,000 $2,000/yr
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