You work for a power distribution company with a large regional presence. Every year your team spends $420000 per year on inspection of wooden poles in mid-west of Western Australia.

Assume your corporate real discount rate is 6%.

Perform your calculations in real terms.

Assume the conventions for when, in time, investment is made and annual costs are charged that have been used in the GENG5507 pre-work materials and workshop. E.g. capital is invested at time zero.

a) What is the net present cost over the next 5 years of continuing to inspect the wooden poles? : [a] (1 mark)

Express your answer in millions of $ to 3dp and do not put a $ symbol in your answer.

b) You are reviewing a capital investment proposal to replace wooden poles with metal poles. It is anticipated that these metal poles will only require inspection once every 5 years. So the first inspection is in year 5 of the cost model. : [b] (1 mark)

What is the net present cost over the next 5 years of replacing all the wooden poles in the mid-west if the capital cost of replacing the wood with metal is $900000?

Express your answer in millions of $ to 3dp and do not put a $ symbol in your answer.