The pavement in a new parking lot is expected to require no maintenance for the first two

years of its life. At EOY3, the first resurfacing will have to be made costing $50,000. Every

two years thereafter, the lot will need resurf

acing. However, the cost for each resurfacing is

expected to increase by 3% from the time before. The useful life of the parking lot is 26

years and no maintenance occurs in year 26. [6 points total]

a.

What is the present worth of the resurfacing costs given a nominal discount rate of 5%.

[3 points]

b.

Assume the parking lot costs $8,500,000 to construct. If the parking lot is expected to

serve on average 400 vehicles per work day and the daily fee must cover both the

amortized cost of the construction and the resurfacing costs, what should the daily per

vehicle charge be? Assume that parking fees are charged only on week days (or 260 days

per year). [3 points]