Number of miles at which the two alternatives break even

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A rural subdivision has several miles of access road that needs a new surface treatment. Alterna- tive 1 is a gravel base and pavement with an initial cost of $500,000 that will last for 15 years and has an annual upkeep cost of $100 per mile. Alternative 2 is to enhance the gravel base now at a cost of $50,000 and immediately coat the surface with a durable hot oil mix, which costs $130 per barrel applied. Annual reapplication of the mix is re quired. A barrel covers 0.05 mile. (a) If the discount rate is 6% per year, determine the number of miles at which the two alternatives break even. (b) A drive in a pickup indicates a total of 12.5 miles of road Which is the more economical alternative?

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