Please note the maintenance costs are per year ie it is an annuity so for eg in option A it is R200 000 per year for each of 18 years and then R 250 000 per year for the next 12 years. The PV of an annuity should be used. Same for all the options.

Question 3 As a special advisor to Special Road Infrastructure Development, you have been approached by the Minister to evaluate the financial viability of three alternative road improvement projects. Project data are captured in Table 3.1: # Table 3.1: Municipal Road improvement project Alternative A Alternative B Alternative C Initial cost R 7 500 000 8 500 000 9 500 000 Annual 200 000 for the R190 000 for the R170 000 for maintenance first 18 years then first 20 years and the first 30 costs, R 250 000 over the R220 000 over years and remaining 12 the remaining R190 000 over years years 15 years the remaining years 10 years Annual Energy 200 000 180 000 160 000 Costs, R Annual Revenue, 350 000 450 000 600 000 R Salvage Value, R 950 000 1200 000 1 400 000 Economic Life, 30 35 years Discount rate p.a. | 12.5% 12.5% 12.5% 40 Using Net Present Value analysis, determine which of the project alternatives is worth implementation. (Hint: F=P(1+i)"; P= A[(1+i)" 1]/[i*(1+i)-1)