1. To resolve the issue of Coronavirus testing, a city decided to set up a plant to produce low cost testing kits. This facility will operate for 12 months and then it will be dismantled. It will cost the city $P to buy the main machine. In addition, the city will spend $45,000 as planning cost before the work commences. The monthly operating and maintenance cost to run the facility will be $52,500. The city also expects to lose additional $43,000 every month for the duration of the facility. It is estimated that, this plant will save taxpayers who will use the testing facility about $15 per usage. The city expects 0.5% of its 2 Million citizens to use the facility every month for 12 months. The facility will be upgraded at a cost of $40,000 at the end of month 5, $75,000 at the end of month 10, and will then be dismantled at the end of month 12 for $100,000. After dismantling, the city will sell the used machine at it salvage value of $72,000. Using benefit-cost ratio analysis with an interest rate of 5%, what is the maximum value of P that the city can spend to buy the main machine? Max P =
1. To resolve the issue of Coronavirus testing, a city decided to set up a plant to produce
low cost testing kits. This facility will operate for 12 months and then it will be
dismantled. It will cost the city $P to buy the main machine. In addition, the city will
spend $45,000 as planning cost before the work commences. The monthly operating and
maintenance cost to run the facility will be $52,500. The city also expects to lose
additional $43,000 every month for the duration of the facility. It is estimated that, this
plant will save taxpayers who will use the testing facility about $15 per usage. The city
expects 0.5% of its 2 Million citizens to use the facility every month for 12 months. The
facility will be upgraded at a cost of $40,000 at the end of month 5, $75,000 at the end of
month 10, and will then be dismantled at the end of month 12 for $100,000. After
dismantling, the city will sell the used machine at it salvage value of $72,000. Using
benefit-cost ratio analysis with an interest rate of 5%, what is the maximum value of P
that the city can spend to buy the main machine? (It has also been assumed that the interest rate is 5% per month)
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