Question

The Florida Department of Transportation (FDOT) is trying to decide whether it should "hot patch" a short section of an existing road or "resurface" it. If the "hot patch" method is used, approximately 350 yds of material will be required at a cost of $575lyd (overall cost). Additionally, the shoulders will have to be improved at the same time at a cost of $25,000. T hese improvements will last three (3) years at which time they will have to be redone. The annual cost of routine maintenance on the patched up road would be $12,000. Alternatively, the FDOT can "resurface" the road at a cost of $750,000. This surface will last ten (10) years if the road is maintained at a cost of $10,000 per year beginning four (4) years from now. No matter which alternative is selected, the road will be completely rebuilt in ten (10 years). At an interest rate of 4% per year, which alternative should the FDO select based on a strict economic evaluation only. Draw cash flow diagrams for bo 16 p alternatives and utilize the appropriate economic evaluation method.

Answer 1