A council needs to rebuild a road betweens two towns. It is considering two different designs:

A concrete pavement

A flexible pavement

Installing a concrete pavement will have a capital cost of $ 32,300,000 and a life of 40 years.

Benefits for the project will be $ 4,900,000 per year.

Annual maintenance costs for the project will be $ 440,000 per year.

At the end of 40 years the road will need to be torn up and replaced. The road pavement materials can be sold for $ 9,800,000.

Installing a flexible pavement will have a capital cost of $ 17,600,000 and a life of 24 years.

Benefits for the project will be $ 4,200,000 per year. (These are lower because the cars will be be required to travel slower).

Annual maintenance costs for the project will be $ 1,225,000 per year.

At the end of 24 years the road will need to be torn up and replaced. The road pavement materials can be sold for $ 5,600,000.

The council uses a discount rate for its road projects of 10%.

What is the Annual Equivalent for the concrete pavement? (Answer to the nearest dollar) ____________

What is the Annual Equivalent for the flexible pavement? (Answer to the nearest dollar) ____________

At the end of the life of the road the council expects to rebuild the road using a similar design with similar costs and benefits repeatedly. Which type of road should the council build?

(a)

Flexible Pavement

(b)

Do not build either

(c)

Concrete Pavement