The First Cost of a Highway Project Is $1

question 43

Essay

The first cost of a highway project is $1.5 million. Operating and maintenance costs were estimated at $50 000 per year. There will be zero salvage value of the highway after 20 years. As a result of this project, a recreational facility worth $10 000 per year in benefits will be destroyed. Assuming a 4% social discount rate, what is the break-even value of time savings to the highway users? How would this value change if social discount rate increased to 10%?

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Definitions:

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