You are the supervisor of a town where the roads are in need of repair. You have a limited budget and are considering two options:
• You can patch up the roads for $100,000, but you will have to repeat this expenditure every year to keep the roads in reasonable shape.
• You can spend $400,000 to repave and repair the roads, in which case your annual expenditures on maintenance will drop.
If your discount rate is 10%, how much would the annual expenditures have to drop in the second option for you to consider it?

  • CreatedApril 15, 2015
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