Question: RR must build a tunnel to maintain his access around the mountain. The tunnel could be fabricated of normal steel for an initial cost of $45,000 and should last for 12 years. Maintenance will cost $1,000 per year.
Another option would be to use corrosion resistant steel, which will last for 12 years, with annual maintenance cost of $100. In 12 years there would be no salvage value for either bridge. RR pays combined federal and state taxes at the 45% marginal rate and uses straight-line depreciation. If the after tax MARR is 12%, what is the maximum amount that should be spent on the corrosion-resistant tunnel?