For a discount rate of 10 percent, consider the following two mutually exclusive projects (Adapted from Higgins 2012):

Building a steel bridge with initial cost \($200,000,\) annual maintenance expenses \($5,000,\) and useful life of forty years, or:

Building a wooden bridge with initial cost \($100,000,\) annual maintenance expenses \($10,000,\) and useful life of ten years.

a. Which option is preferable from an economic point of view?

b. Now assume that the firm believes it will need a bridge for twenty years. The company also believes that reconstructing the wooden bridge at the end of ten years would cost \($150,000\) (due to inflation). Finally, the company estimates that the salvage value of the steel bridge in twenty years will be \($90,000.\) How does this information affect your choice? (Problem adapted from Higgins 2012.)