2. (2.5 points) Horizon Wireless must rebuild a cell tower recently destroyed by a tornado. If made of normal steel, the tower will cost $40,000 to construct and should last 18 years. Maintenance will cost $1,000 per year. If corrosion resistant steel is used, the tower will cost $50,000 to build and the annual maintenance cost will be reduced to $200 per year. Determine the IRR of building the corrosion resistant tower. If Horizon requires a return of 10% on its capital projects, which tower should they build? I Solution NPWNS = -40,000 - 1,000 (P/A, 1%, n) = 40,000 - 1000 (P/A, 1%, 18) - NPWRS = -50,000 - 200 (P/A, j%, n) = -50,000 - 200 (P/A, 1%, 18) NPWNS = NPWRS -40,000 - 1000 (P/A, 1%, 18) = -50,000 - 200 (P/A, 1%, 18) 10,000 - 800 (P/A, 1%, 18) = 0 (P/A, i%, 18) = -10,000/-800 - 12.5 Atj%, P/A = 12.5 At 4%, P/A = 12.659 At 4.5%, P/A = 12.160 4%