Sacramento is considering building a temporary bridge to cut travel time during the three years it will take to build the new permanent “I” Street bridge to West Sacramento. The temporary bridge would be constructed over two years at a cost of $300,000 each year. At the beginning of the fourth year following three years of useful life it would be removed at a cost of $80,000. City cost-benefit analysts predict that the benefits in real dollars would be $200,000 during the first year, $300,000 during the second year, and $400,000 during the third year. Set up the NPV equation for the CBA.

Sacramento is considering building a temporary bridge to cut travel time during the three years it will take to build the new permanent “I” Street bridge to West Sacramento. The temporary bridge would be constructed over two years at a cost of $300,000 each year. At the beginning of the fourth year following three years of useful life it would be removed at a cost of $80,000. City cost-benefit analysts predict that the benefits in real dollars would be $200,000 during the first year, $300,000 during the second year, and $400,000 during the third year. Set up the NPV equation for the CBA.

Managerial Economics: Applications, Strategies and Tactics (MindTap Course List)

14th Edition

ISBN:9781305506381

Author:James R. McGuigan, R. Charles Moyer, Frederick H.deB. Harris

Publisher:James R. McGuigan, R. Charles Moyer, Frederick H.deB. Harris

Chapter17: Long-term Investment Analysis

Section: Chapter Questions

Problem 9E

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