Question
The City of Omniville has two options for a viaduct. One is a permanent cement canal and the other a cast iron (CI) pipe. If
The City of Omniville has two options for a viaduct. One is a permanent cement canal and the other a cast iron (CI) pipe. If details for the options are as shown, at what rate of interest should the city be indifferent to either choice?
| Cement Canal | CI PIPE | ||
| Initial cost | ($5,000,000) | ($4,000,000) | |
| Life | Perpetual | 25 | years |
| Annual maintenance cost | $550,000 | $700,000 | |
| Salvage | $0 | $560,000 | |
| Initial Rate | 11.0% | p. y. | |
| Possible answers: | 35.04%, | |
| 6.9%, | ||
| 10.66%, or | ||
| 16.31%? |
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Personal Finance
Authors: E. Thomas Garman, Raymond E. Forgue, Jonathan Fox
14th Edition
0357901495, 9780357901496
