Question: A state government is considering two plans for building a four lane highway between two major cities. Plan A is to build now a four-lane,
A state government is considering two plans for building a four lane highway between two major cities. Plan A is to build now a four-lane, divided highway capable of handling the maximum inter-city flow of traffic for the indefinite future. The cost of construction is $2, 318, 200 and the uniform annual maintenance costs are $22,000 a year. Plan B is to build a two-lane road now and build the remaining two lanes N years later. The engineer for the project is uncertain about the time, N, when the second two lanes would be needed. For each two lane road, the cost of construction is $1, 608,000 and uniform annual maintenance costs are $28, 700 a year. Assume the highway is required indefinitely and that MARR is 10%. What is the breakeven point (N_BE) between the two plans? If the engineer estimates N as the time when the second two lanes would be needed if plan B is selected, and N_BE is less than N, which plan would be recommended
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