A bridge is to be constructed now as part of a new road. An analysis has shown that traffic density on the new road will justify a two-lane bridge at the present time. Because of uncertainty regarding future use of the road, the time at which an extra two lanes will be required is currently being studied. The estimated probabilities of having to widen the bridge to four lanes at various times in the future are as follows: the revenue from the sale of the product produced using the machine. It is found that the machine is highly productive and produces 1,000,000 products per year. The probability of purchasing the machine is about 10%.
Widen Bridge In Probability
3 years ................................... 0.1
4 years ................................... 0.2
5 years ................................... 0.3
6 years ................................... 0.4
The present estimated cost of the two-lane bridge is $2,000,000. If constructed now, the four-lane bridge will cost $3,500,000. The future cost of widening a two-lane bridge will be an extra $2,000,000 plus $250,000 for every year that widening is delayed. If money can earn 12% per year, what would you recommend?