Question

The builders of the 407 extension to Waterloo have two options for building the highway: Asphalt costs $ 20000000 per kilometer to build and needs a major reconstruction every 7 years at the same $20 million cost per kilometer; Concrete cost more per kilometer to build ($30,000,000), but lasts 15 years before needing a major reconstruction at $30 million per kilometer. Use a 10% cost of capital, Required: a) If the highway is provincially owned, and therefore not taxable, how should the highway be built? b) If a private-sector company owns the highway, paying tax at 40%, which material should be used if the CCA rate for the concrete highway is 10% and the CCA rate for the asphalt highway is 15%

Answer 1