What is the maximum amount that should be spent

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Reference no: EM132168053

Question: A large company must build a bridge to have access to land for expansion of its manufacturing plant. The bridge can be fabricated of normal steel for an initial cost of $30,000 and should last 15 years. Maintenance (cleaning and painting) will cost $1000 per year. If a more corrosion-resistant steel were used, the annual maintenance cost would be only $100 per year, although the life would be the same. In 15 years, there will be no salvage value for either version of the bridge. The company pays taxes at the 48% marginal rate and uses straight-line depreciation. If the minimum acceptable after-tax rate of return is 12%, what is the maximum amount that should be spent on the corrosion resistant bridge?

Reference no: EM132168053

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