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elena-s [515]
4 years ago
8

It is currently 2018 and you are the mayor of Snowville, IL. Your public works department has determined that your town’s main h

ighway needs to be repaved in the next two years. The cost to complete the project today would be $4,300,000. Your town’s engineers estimate that the project’s cost would increase by a total of 9% if delayed by two years to 2020. If the risk-free annual rate is 4% per year, what is the cost, in terms of 2018 dollars, of deciding to delay the project by 2 years? (Select the most appropriate answer below)
Business
1 answer:
Scorpion4ik [409]4 years ago
6 0

Answer:

the net cost for delaying the project will be of 36,120 dollars.

Explanation:

4,300,000 investment

if delayed will increase by 9%

4,300,000 x 0.09 = 387,000 inrease in cost

this cost will be mitigated by the revenue on the interest.

the funds will be placed at 4% per year during two years:

4,300,000 x (1.04^2 - 1) = 350.880‬ interest revenue

net : 36,120

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