Number of miles at which the two alternatives break even

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A rural subdivision has several miles of roads that need a new surface treatment. One option is a gravel base and pavement with an initial cost of $500,000 that will last for 15 years and has an annual maintenance cost of $100/mile. Alternative 2 is to enhance the gravel base now at a cost of $50,000 and immediately coat the surface with a durable hot oil mix, which costs $130/barrel applied. Annual reapplication of the mix is required. A barrel covers 0.05 mile. a) Compute the number of miles at which the two alternatives break even. b) Which is the more economical alternative if there are 12.5 miles of road? Use an interest rate of 6%/year.

Reference no: EM13832589

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