ECON 222 Lecture 12: Chapter 15 pt 2
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Two possible routes for a power line are under study. Data on the routes are as follows:
Around the Lake | Under the Lake | |
Length | 15 km | 5 km |
First Cost | $5,000/km | $25,000/km |
Maintenance | $200/km/yr | $400/km/yr |
Useful life | 15 | 15 |
Salvage value | $3,000/km | $5,000/km |
Yearly value | $500/km | $500/km |
Annual property taxes | 2% of the first cost | 2% of the first cost |
If 7% interest is used, should the power line be routed around the lake or under the lake?