Define which alternative should the state select

Reference no: EM13243797

A state highway department is trying to decide whether it should"hot-patch" a short section of an existing county road or resurfaceit. If the hot-patch method method is used, approximately 300cubic metres of material would be required at a cost of $700 percubic metre (in place). Additionally, the shoulders will haveto be improved at the same time at a cost of $24,000. Theseimprovements will last 2 years, at which time they will have to bere-done. The annual cost of routine maintenance on thepatched up road would be $5,000. Alternatively, the state canresurface the road at a cost of $850,000. This surface willlast 10 years if the road is maintained at a cost of $2,000 peryear beginning 3 years from now. No matter which alternativeis selected, the road will be completely rebuilt in 10 years. At an interest rate of 8% per year, which alternative should thestate select on the basis of an annual worth analysis?

Reference no: EM13243797

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