HZ Wireless must rebuild a cell tower recently destroyed by a tornado. A tower made of normal steel (NS) will cost $30,000 to construct and should last 15 years. Maintenance will cost $1000 per year. If corrosion-resistant steel (CRS) is used, the tower will cost $36,000 to build, but the annual maintenance cost will be reduced to $250 per year.
a. Determine the IRR of building the corrosion-resistant tower. (Hint: Calculate interest rates from 7% to 11% using formulae provided in tables).
b. If HZ requires a return of 9% on its capital projects, which tower should be chosen? (Use linear interpolation for the IRR between integral values).
c. If the design life is just 5 years, which tower should be chosen and why?