Break even cost of money between these two projects
Microeconomics
An old covered bridge can be strengthened at a cost of $9000, or can be replaced for $40,000. The present salvage value of the old bridge is $13,000. With reinforcements, it will last for an additional 20 years with $500 annual maintenance and have a salvage value at that time of $1000. The new bridge has a service life of 25 years and would bring $15000 salvage at that time and will reduce annual maintenance by $400 over the old bridge.
a) If the cost of money is 8%, should the bridge be replaced?
b) What is the break even cost of money between these two projects?
