The construction of a new highway takes four years. The construction costs during first, second, third...
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The construction of a new highway takes four years. The construction costs during first, second, third and fourth years are $3 million, $5 million, $7 million and $9 million, respectively. Once the highway is constructed, it incurs an annual operating cost of $0.5 million. The highway will be toll free for two years after its construction. The benefit received from toll collection is expected to start with $3 million in third year after highway construction and increase at 5% per year for the rest of planning horizon. The total planning horizon, starting at the beginning of construction stage is 50 years. Is the construction of this highway economically viable (net benefit>0)? Justify your answer with suitable calculations. Consider the interest rate to be 5%. The construction of a new highway takes four years. The construction costs during first, second, third and fourth years are $3 million, $5 million, $7 million and $9 million, respectively. Once the highway is constructed, it incurs an annual operating cost of $0.5 million. The highway will be toll free for two years after its construction. The benefit received from toll collection is expected to start with $3 million in third year after highway construction and increase at 5% per year for the rest of planning horizon. The total planning horizon, starting at the beginning of construction stage is 50 years. Is the construction of this highway economically viable (net benefit>0)? Justify your answer with suitable calculations. Consider the interest rate to be 5%.
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Related Book For
Advanced Accounting
ISBN: 978-1934319307
2nd edition
Authors: Susan S. Hamlen, Ronald J. Huefner, James A. Largay III
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