A two-lane road surface can be finished with concrete or asphalt. Concrete will cost $2.3 mil­lion per mile (excluding right-of-way, environ­mental mitigation, or soil and site conditions) and will last for 20 years. If signing, mowing, and winter maintenance are not included, the basic maintenance costs for concrete and asphalt roadways average $486 and $774 per mile per year, respectively. The interest rate is 8% per year. (a) What is the maximum amount that can be spent on asphalt if it lasts 10 years? (b) Use a spreadsheet to graph the breakeven curve for the cost of asphalt, if different quality levels of as­phalt can be used with expected lives of 5, 8, 10, 12, and 15 years.

Question

What will be an ideal response?

Answer 1

(a) -2,300,000(A/P,8%,20) - 486 = -x(A/P,8%,10) – 774

-2,300,000(0.10185) - 486 = -x(0.14903) – 774

x = $1,569,932





(b) Develop the AW relations using the PMT function while allowing the n value for

asphalt to vary from 5 to 15 years. Set the initial cost at a constant, e.g., $-1,000,000,

and use Goal Seek successively to determine the breakeven value. Plot n versus

breakeven asphalt cost.