The Road agency is planning to build a new bridge and is considering two distinct configurations. The initial costs and annual costs and benefits for each bridge are shown in table 2. The bridges are each expected to give positive returns within 7 years and the rate of return expected 9%. Which would you choose and why. Table 2 Alternative I Alternative II Initial cost $ 5,000,000.00 $ 10,000,000.00 Annual maintenance and operating costs $ 15,000.00 $ 10,000.
The Road agency is planning to build a new bridge and is considering two distinct configurations. The initial costs and annual costs and benefits for each bridge are shown in table 2. The bridges are each expected to give positive returns within 7 years and the rate of return expected 9%. Which would you choose and why. Table 2 Alternative I Alternative II Initial cost $ 5,000,000.00 $ 10,000,000.00 Annual maintenance and operating costs $ 15,000.00 $ 10,000.
Chapter11: Capital Budgeting Decisions
Section: Chapter Questions
Problem 5EB: A grocery store is considering the purchase of a new refrigeration unit with an Initial Investment...
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The Road agency is planning to build a new bridge and is considering two distinct configurations. The initial costs and annual costs and benefits for each bridge are shown in table 2. The bridges are each expected to give positive returns within 7 years and the
Table 2
|
|
Alternative I |
Alternative II |
|
Initial cost |
$ 5,000,000.00 |
$ 10,000,000.00 |
|
Annual maintenance and operating costs |
$ 15,000.00 |
$ 10,000.00 |
|
Annual benefits |
$ 1,200,000.00 |
$ 1,900,000.00 |
|
Annual benefits less costs |
$ 1,185,000.00 |
$ 1,890,000.00 |
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