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3. The government is considering a major upgrade of the interstate highway system (repairing or enhancing bridges and overpasses). The plan is to spend $70
3. The government is considering a major upgrade of the interstate highway system (repairing or enhancing bridges and overpasses). The plan is to spend $70 billion per year on he project over the next 10 years. The upgrade is estimated to save, however, an average $1 billion per year in maintenance expense over the next 50 years. In addition, over this same 50-year period, the upgrade would contribute to an average annual increase in the country's GDP of $25 billion. For present value purposes, assume a 3-percent discount rate throughout the 50-year period. Also, because the benefits of this project (savings on maintenance and the boost to the economy) are a projected annual average over the next 50 years, assume they begin to be realized immediately even though the full project will take 10 years to complete. Questions: . What is the present value of the cost of this potential project? (2 pts.) NOTE: Enter a formula to calculate a numeric value). . What is the present value of the estimated benefits of this project? (2 pts.) NOTE: Enter a formula to calculate a numeric value). . Based on your answers above, should the government finance this project? Briefly explain. (2 pts.)
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