Reference no: EM131232998

A highway department is considering building a temporary bridge to cut travel time during the three years it will take to build a permanent bridge. The temporary bridge can be put up in a few weeks at a cost of $740,000. At the end of three years, it would be removed and the steel would be sold for scrap. The real net costs of this would be $81,000. Based on estimated time savings and wage rates, fuel savings, and reductions in risks of accidents, department analysts predict that the benefits in real dollars would be $275,000 during the first year, $295,000 during the second year, and $315,000 during the third year. Departmental regula- tions require use of a real discount rate of 4 percent.

a. Calculate the present value of net benefits assuming that the benefits are realized at the end of each of the three years.