The cost associated with maintaining rural highways follows a predictable pattern. There are usually no costs for the first 3 years, but thereafter maintenance is required for restriping, weed control, light replacement, shoulder repairs, etc. For one section of state highway S102, these costs are projected to be $6000 in year 3, $7000 in year 4, and amounts increasing by $1000 per year through the highway’s expected 30-year life. (a) Assuming it is replaced with a similar roadway, determine the perpetual equivalent annual cost (years 1 to ∞) at an interest rate of 8% per year. (b) Verify your factor-based answer on a spreadsheet in the most efficient way you know.
The cost associated with maintaining rural highways
follows a predictable pattern. There are usually
no costs for the first 3 years, but thereafter
maintenance is required for restriping, weed control,
light replacement, shoulder repairs, etc. For
one section of state highway S102, these costs are
projected to be $6000 in year 3, $7000 in year 4, and amounts increasing by $1000 per year through
the highway’s expected 30-year life.
(a) Assuming it is replaced with a similar roadway,
determine the perpetual equivalent annual
cost (years 1 to ∞) at an interest rate of
8% per year.
(b) Verify your factor-based answer on a spreadsheet
in the most efficient way you know.
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