E2 A steel bridge on Louisiana state highway near the Gulf of Mexico is costing $450.000 yearly in maintenance large chipping, priming, and painting. It originaly cost $1.600.000 when it was built 15 years ago. The Louisiana bridge engineers estimate that its remaining life is 10 years, then it will need to be replaced because of increased traffic. Its salvage value at any point in time is zero, because the cost of demolition will most like equal its value as scrap steel. A concrete bridge is considered to be the best challenger. It will cost $3.000.000 to build and $100.000 annually in maintenance costs. Its estimated life is 50 years. Its resale value may be counted as zero at any time during its life. No taxes of any kind will be considered for this government project. All costs are in constant dollars of year 0. Inflation may be ignored. Assume that annual benefits for either structure are exactly the same. A discount rate of 10 percent is to be used in analysis. (a) What is the economic life of the challenger? (b) Should the steel bridge be replaced now?
E2
A steel bridge on Louisiana state highway near the Gulf of Mexico is costing $450.000 yearly
in maintenance large chipping, priming, and painting. It originaly cost $1.600.000 when it was
built 15 years ago. The Louisiana bridge engineers estimate that its remaining life is 10 years,
then it will need to be replaced because of increased traffic. Its salvage value at any point in
time is zero, because the cost of demolition will most like equal its value as scrap steel.
A concrete bridge is considered to be the best challenger. It will cost $3.000.000 to build and
$100.000 annually in maintenance costs. Its estimated life is 50 years. Its resale value may be
counted as zero at any time during its life.
No taxes of any kind will be considered for this government project. All costs are in constant
dollars of year 0. Inflation may be ignored. Assume that annual benefits for either structure are
exactly the same. A discount rate of 10 percent is to be used in analysis.
(a) What is the economic life of the challenger?
(b) Should the steel bridge be replaced now?
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