Reference no: EM133245371

You work for a power distribution company with a large regional presence. Every year your team spends $400000 per year on inspection of wooden poles in mid-west of Western Australia.

Assume your corporate real discount rate is 5%.

Perform your calculations in real terms. 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]

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]

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 $1000000?

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