Question: A council needs to rebuild a road between two towns. It is considering two different designs: . A concrete pavement . A flexible pavement installing a concrete pavement will have a capital cost of $ 31,900,000 and a life of 38 years. Benefits for the project will be $ 5,500,000 per year. Annual maintenance costs for the project will be $ 520,000 per year. At the end of 38 years the road will need to be torn up and replaced. The road pavement materials can be sold for $ 7,200,000. installing a flexible pavement will have a capital cost of $ 17,100,000 and a life of 16 years. Benefits for the project will be $ 4,200,000 per year. (These are lower because the cars will be be required to travel slower). Annual maintenance costs for the project will be $ 1,225,000 per year. At the end of 16 years the road will need to be torn up and replaced. The road pavement materials can be sold for $ 4,000,000. The council uses a discount rate for its road projects of 13%. What is the Annual Equivalent for the concrete pavement? (Answer to the nearest dollar) What is the Annual Equivalent for the flexible pavement? (Answer to the nearest dollar) At the end of the life of the road the council expects to rebuild the road using a similar design with similar costs and benefits repeatedly. Which type of road should the council build? (a) Flexible Pavement (b) Do not build either (0) Concrete Pavement

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