3) The Lubbock Board of City Development has decided to ask the City Council to

Question

3) The Lubbock Board of City Development has decided to ask the City Council to construct a tunnel under the snowcapped mountain range east of downtown Lubbock so that out of town visitors can reach historic prairie dog town without becoming lost and ending up at the ski lift. This project is expected to have a first cost of $2,000,000 and an annual maintenance cost of $50,000. In addition major repairs costing $250,000 will be required after 25 years and each 15 years thereafter. Use an interest rate of 12% and determine the capitalized cost of the project.

Explanation / Answer

NPV = 2000000 + 50000/0.12 + 250000/1.12^25 + 250000/1.12^25*4.473565759

= 2435659.77

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