The City Council of a fast growing city in the west of Canada is planning...
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Accounting
The City Council of a fast growing city in the west of Canada is planning to construct a new express way to help improve the traffic flow in the city. Construction is to start in 2020 and is expected to last four years at a cost of $40 million per year. After construction is completed, the regular cost of operation and maintenance is expected at $3 million for the first year, increasing by 1% per year thereafter. Major overhauling (major repair) for the express way is needed every 10 years at a cost of $5 million (each time). Consider the present to be the end of 2015/beginning of 2016. The service life of the express way is 40 years and the interest rate is 6%. a) Draw a cash flow diagram for the new express way project (from present till end of year 2063). (8 Marks) b) Determine the Present Worth of the project. (10 Marks) c) Determine the Annual Worth of the project (Hint: make use of the PW calculated in b). (7 Marks)
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