Question 3.2 A newly constructed bridge costs $ 32,000,000. The same bridge is estimated to need renovation every 20 years at a cost of $ 13,500,000. Annual repairs and maintenance are estimated to be $2,700,000 per year. (a) If the interest rate is 12%, determine the capitalized cost of the bridge. (b) Suppose that in (a), the bridge must be renovated every 25 years, not every 20 years. What is the capitalized cost of the bridge? (c) Repeat (a) and (b) with the interest rate of 16 %. What can you say about the effect of interest on the results.
Question 3.2 A newly constructed bridge costs $ 32,000,000. The same bridge is estimated to need renovation every 20 years at a cost of $ 13,500,000. Annual repairs and maintenance are estimated to be $2,700,000 per year. (a) If the interest rate is 12%, determine the capitalized cost of the bridge. (b) Suppose that in (a), the bridge must be renovated every 25 years, not every 20 years. What is the capitalized cost of the bridge? (c) Repeat (a) and (b) with the interest rate of 16 %. What can you say about the effect of interest on the results.
Chapter1: Making Economics Decisions
Section: Chapter Questions
Problem 1QTC
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Transcribed Image Text:Question 3.2
A newly constructed bridge costs $ 32,000,000. The same bridge is
estimated to need renovation every 20 years at a cost of $ 13,500,000. Annual repairs and
maintenance are estimated to be $2,700,000 per year.
(a) If the interest rate is 12%, determine the capitalized cost of the bridge.
(b) Suppose that in (a), the bridge must be renovated every 25 years, not every 20 years.
What is the capitalized cost of the bridge?
(c) Repeat (a) and (b) with the interest rate of 16 %. What can you say about the effect of
interest on the results.
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