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Question 5 Two structural designs for a large public monument in Indonesia are under evaluation as shown in the table. Determine which design should be selected if the service period of the monument is indefinite and the interest rate is 2% per year. Please state clearly any assumptions. Alternative Initial cost, $ Annual maintenance cost, $ Useful life, years A 310,000 23,000 8 B 325,000 24,500 11 (10 marks)

          Question 5
Two structural designs for a large public monument in Indonesia are under evaluation as shown in the
table. Determine which design should be selected if the service period of the monument is indefinite and
the interest rate is 2% per year. Please state clearly any assumptions.
Alternative
Initial cost, $
Annual maintenance cost, $
Useful life, years
A
310,000
23,000
8
B
325,000
24,500
11
(10 marks)

Question 5
Two structural designs for a large public monument in Indonesia are under evaluation as shown in the
table. Determine which design should be selected if the service period of the monument is indefinite and
the interest rate is 2% per year. Please state clearly any assumptions.
Alternative
Initial cost, Annual maintenance cost,
Useful life, years
A
310,000
23,000
8
B
325,000
24,500
11
(10 marks)

Added by Cristian C.

Principles of Economics

Gregory Mankiw 8th Edition

Instant Answer

Solved by Expert Prabhat Tyagi

Step 1

For alternative A: PV(A) = Annual maintenance cost / (1 + interest rate)^useful life PV(A) = $23,000 / (1 + 0.02)^8 PV(A) = $23,000 / (1.02)^8 PV(A) = $23,000 / 1.171661 PV(A) ≈ $19,618.82 For alternative B: PV(B) = Annual maintenance cost / (1 + interest Show more…

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Question 5: Two structural designs for a large public monument in Indonesia are under evaluation as shown below. The interest rate is 2% per year. Please state clearly any assumptions. (10 marks) Alternative Initial cost, Annual maintenance cost, Useful life, years A $310,000 $23,000 8 B $325,000 $24,500 11