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. **Show all steps, do NOT use Excel to calculate

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