A.4. A steel bridge on a county highway near the ocean cost $3,500,000 12 years ago. Although the average annual maintenance costs of $72,000 per
A.4. A steel bridge on a county highway near the ocean cost $3,500,000 12 years ago. Although the average annual maintenance costs of $72,000 per year have seemed excessive to the county supervisors, these costs, mainly for painting, have been necessary to prevent severe corrosion in this particular location. A consultant offers to design and oversee the construction of a reinforced concrete bridge to replace this steel bridge. He estimates the total first cost of the concrete bridge to be $4,200,000 and the net salvage from the steel bridge either now or any time in the next 38 years to be $200,000. He reasons that the required net outlay is therefore $4,000,000, and since the county receives $5,000,000 a year for county highway improvement from state gas tax funds, this new bridge could be financed without borrowing. His economic comparison follows: Annual cost of proposed concrete bridge depreciation (based on 50-yr life) = $4.000,000 = $ 80,000 50 annual maintenance cost 2,000 total annual cost = $ 82,000 Annual cost of present steel bridge depreciation (based on 50-yr life) = $3,500,000 = $ 70.000 50 annual maintenance cost 72,000 total annual cost = $142,000 Comment on the consultant's analysis. Show the calculations and results you would use to present the comparative annual costs of the two bridges. Use i = 6 percent
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