What is the best plan for a replacement pattern

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A mining development needs a railroad branch line. The expected operational life is 25 years after which the site will be restored and the track re¬moved. The line can be built with untreated wood ties that cost $25 installed and have a 6-year life or with treated wood ties that have an installed cost of $40 and a 10-year life. When ties are removed from service, they can be sold for $3 or if they have at least 4 years of life left, then they can be used elsewhere. The salvage value for that is estimated at $10. If the firm's inter¬est rate is 12%, should treated or untreated ties be purchased initially, and what is the best plan for a replacement pattern?

Reference no: EM132456620

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