The state highway department is considering six routes for a new highway. Listed are the estimated construction costs, maintenance costs, and the user cost associated with each route.

The life of the highway is expected to be 25 years with no salvage value. If the initial interst rate is 8%, which highway route is most desirable?

a. Solve using incremental analysis b. Solve using total investment analysis (Answer: A5) c. If the estimated costs are in constant dollars and the annual inflation rate is 8%, which route is favored? (Answer: A6)

Construction Annual Maintenance Annual users Cost Route Costs per Kilometer Costs per Kilometer per Kilometer $1500,000 $9,789 $450,000 1,687,500 9,225 437,262 1,875,000 8,682 427,104 A4 2,100,000 7,977 400,326 2,250,000 6,639 370,524 A6 2,437,500 6,399 356,094