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.).

Required:

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?

Answer rating: 100% (QA)

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