A state highway department is trying to decide whether it should â€œhot-patchâ€ a short section of...

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Economics

A state highway department is trying to decide whether it shouldâ€œhot-patchâ€ a short section of an existing country road orresurface it. If the hot-patch method is used, approximately 300cubic meters of material would be required at a cost of $700 percubic meter (in place). Additionally, the shoulders will have to beimproved at the same time at a cost of $24,000. These improvementswill last 2 years, at which time they will have to be redone. Theannual cost of routine maintenance on the patched up road would be$5000. Alternatively, the state can resurface the road at a cost of$850,000. The surface will last 10 years if the road is maintainedat a cost of $2000 per year beginning 4 years from now. No matterwhich alternative is selected, the road will be completely rebuiltin 10 years. At an interest rate of 9% per year,
a. make a recommendation on the best alternative based on theannual worth analysis.
b. make a recommendation based on the present worth method

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3.9 Ratings (743 Votes)

The option1 requires material for 300 cubic meters and the rate is 700 per cubic meter and also needs shoulder improvement 300 700 24000 234000 This is valid for 2 years and the end of 2nd year the same cost will be again incurred The annual maintenance is 5000 per year Option B has an See Answer

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A state highway department is trying to decide whether it should â€œhot-patchâ€ a short section of...