The government is considering a major upgrade of the interstate highway system (repairing or enhancing bridges and overpasses). The plan is to spend $80 billion per year on the project over the next 5 years. The upgrade is estimated to save, however, an average $1 billion per year in maintenance expense over the next 30 years. In addition, over this same 30-year period, the upgrade would contribute to an average annual increase in the country's GDP of $20 billion. For present value purposes, assume a 3-percent discount rate throughout the 30-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 30 years, assume they are realized immediately even though the full project will take 5 years to complete.

What is the present value of the cost of this potential project?

What is the present value of the estimated benefits of this project?

Based on your answers above, should the government finance this project? Briefly explain.