A railroad branch line to a missile site is to be constructed. It is expected that the railroad line will be used for 15 years, after which the missile site will be removed and the land turned back to agricultural use. The railroad track and ties will be removed at that time.
In building the railroad line, either treated or untreated wood ties may be used. Treated ties have an installed cost of $6 and a 10-year life; untreated ties are $4.50 with a 6-year life. If at the end of 15 years the ties then in place have a remaining useful life of 4 years or more, they will be used by the railroad elsewhere and have an estimated average value of $3 each. Any ties that are removed at the end of their service life, or too close to the end of their service life to be used elsewhere, can be sold for $0.50 each.
Determine the most economical plan for the initial railroad ties and their replacement for the 15- year period. Make a present worth analysis assuming 8% interest.