The state of Texas is deciding to build a direct highway from College Station to Houston. Two contractors have provided

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The state of Texas is deciding to build a direct highway from College Station to Houston. Two contractors have provided the following costs. Contractor A requires $1M up front, with $10K in recurring yearly maintenance costs. Contractor B requires $900K up front with $11K in recurring yearly maintenance costs. Assume a MARR of 5% and the investment to be perpetual.

(a) What is the capitalized cost for each contractor? Which contractor is the cheapest to hire?

(b) If every 5 years, both contractors require a renovation fee of $5K, what will be the additional annual cost? By how much would the capitalized cost increase?

(c) If the road cost is not perpetual and only anticipated to be used for 20 years, which contractor is the least costly in terms of present worth? (Assume no 5-year renovation)