Union Pacific is considering the elimination of a railroad grade crossing by constructing a dual track 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? A. 70,707 B. 70,717 C. 70,727 D. 70,737 E. No correct answer
Union Pacific is considering the elimination of a railroad grade crossing by constructing a dual track 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? A. 70,707 B. 70,717 C. 70,727 D. 70,737 E. No correct answer
Chapter10: Project Cash Flows And Risk
Section: Chapter Questions
Problem 13PROB
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