(a):
Calculate the usage maintenance cost.
(a):
Explanation of Solution
Construction cost of gravel road (CCG) is $1,025,000. Its maintenance cost (MCG) is $355,000. Time period (n) is 3 years. Construction cost of bituminous road (CCB) is $3,525,000. Time period (n1) is 10 years. Interest rate is 8%.
Maintenance cost of bituminous road (MCB) can be calculated as follows:
Maintenance cost of bituminous road is $227,400.
(b):
Calculate the number of years.
(b):
Explanation of Solution
Maintenance cost of gravel road. Increases (MCGI) by 30%.
Time period for gravel road (n) can be calculated as follows:
Substitute the time period as 4.3 years in the above calculation by trial and error method to verify the years.
Since the calculated value is equal to the annual value factor to the present value, it is confirmed that the number of years is 4.3.
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Chapter 13 Solutions
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