Union Pacific is considering the elimination of a railroad grade crossing by constructing a dualtrack overpass. The railroad subcontracts for maintenance of its crossing gates at $11,500 per year. Beginning 4 years from now, however, the costs are expected to increase by 10% per year into the foreseeable future (that is, $12,650 in year 4, $13,915 in year 5, etc.). If the railroad uses a 10-year study period and an interest rate of 15% per year, how much could the railroad afford to spend now on the overpass in lieu of the maintenance contracts?
Union Pacific is considering the elimination of a railroad grade crossing by constructing a dualtrack overpass. The railroad subcontracts for maintenance of its crossing gates at $11,500 per year. Beginning 4 years from now, however, the costs are expected to increase by 10% per year into the foreseeable future (that is, $12,650 in year 4, $13,915 in year 5, etc.). If the railroad uses a 10-year study period and an interest rate of 15% per year, how much could the railroad afford to spend now on the overpass in lieu of the maintenance contracts?
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
Section: Chapter Questions
Problem 1PS
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Union Pacific is considering the elimination of a railroad grade crossing by constructing a dualtrack overpass. The railroad subcontracts for maintenance of its crossing gates at $11,500 per year. Beginning 4 years from now, however, the costs are expected to increase by 10% per year into the foreseeable future (that is, $12,650 in year 4, $13,915 in year 5, etc.). If the railroad uses a 10-year study period and an interest rate of 15% per year, how much could the railroad afford to spend now on the overpass in lieu of the maintenance contracts?
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