6. A sports complex is to be constructed. Two plans are under consideration. Plan A is to construct a three-storey building with provision for adding 12 stories at a future date. The cost of this initial building is P 3,100,000. In 10 years, the 12 stories can be added at a cost of P 10,200,000. The life of the structure is 35 years with zero salvage value. Plan B is to construct for P 1,110,000 three-storey building which will be demolished after 10 years and replaced by a 15-storey structure at a cost of P 18,300,000. The life of the structure is 35 years. Maintenance on Plan A will be P 40,000 and Plan B P 35,000 per year for the first 10 years, and after they be alike. The property taxes will be 4% and money is worth 20%. Which plan would you recommend? EL

6. A sports complex is to be constructed. Two plans are under consideration. Plan A is to construct a three-storey building with provision for adding 12 stories at a future date. The cost of this initial building is P 3,100,000. In 10 years, the 12 stories can be added at a cost of P 10,200,000. The life of the structure is 35 years with zero salvage value. Plan B is to construct for P 1,110,000 three-storey building which will be demolished after 10 years and replaced by a 15-storey structure at a cost of P 18,300,000. The life of the structure is 35 years. Maintenance on Plan A will be P 40,000 and Plan B P 35,000 per year for the first 10 years, and after they be alike. The property taxes will be 4% and money is worth 20%. Which plan would you recommend? EL

Essentials Of Investments

11th Edition

ISBN:9781260013924

Author:Bodie, Zvi, Kane, Alex, MARCUS, Alan J.

Publisher:Bodie, Zvi, Kane, Alex, MARCUS, Alan J.

Chapter1: Investments: Background And Issues

Section: Chapter Questions

Problem 1PS

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3. The town of Covington is planning to build a pedestrian/bicycle bridge across a stream at a local park. The initial cost of the bridge is estimated at $400,000 with annual maintenance of $12,000. The bridge must be resurfaced every 12 years at a cost of $100,000 and must be painted every 6 years at a cost of $25,000. If the expected life of the bridge is 60 years, what is the EAC at i-4%?
6. An elective project is currently under review. One alternative requires an initial investment of $116,000 for equipment. The profit is expected to be $28,000 each year, over the 6-year project period. The salvage value of the equipment at the end of the project period is projected to be $22,000. A second alternative requires an initial investment of $60,000 for equipment. The profit is projected to be $16,000 each year, over the 6-year project period. The salvage value of the equipment at the end of the project period is projected to be $14,000. The IRR of this alternative is 18.69%. Determine which alternative is preferred using the appropriate IRR method. Assume a MARR of 10%. Justify your recommendation, based on this method.
A proposal is in place to set up a nuclear power plant cooling water filtration project along a river. The benefits (B) are projected to be 10,000 USD per year forever, starting in year 1. The costs (C) are 50,000 USD in year 0 and 50,000 USD at the end of year 2. At 10% annual interest, it this project beneficial? Provide solutions and justifications
Annual maintenance costs of a tunnel considered to have an eternal life are $ 500.is worth. The interest rate is considered to be an average of 5% per year. CapitalizedSince the cost is estimated to be $ 15,000, how much is the initial investment cost of the tunnel?can it? (Answer: $ 5,000)
The Cebu City plans to increase the capacity of her existing water transmission lines. Two plans are under consideration. Plan A requires the construction of a parallel pipeline, the flow being maintained by gravity. The initial cost is P197,342,811 and the life is 40 years, with an annual operating cost of P8,450,154 for the 1st 20 years and P13,297,046 for the next 20 years. Plan B requires the construction of a booster pumping station costing P100M with the life of 40 years. The pumping equipment cost an additional amount of P25M, it has a life of 20 years and a salvage value of P2M. The annual operating cost is P5M. Using the Present Value (PV) Method and an interest of 21% cpd. annually, what is the PV of Plan A?
T1.
A proposed project requires an investment of $250,000 and will require an additional $60,000 for upgrades in year five. The income from the project is expected to be $65,000 in years one through four and $50,000 in years six through seven. In year five, revenue to be in ye of the $60,000 spent for upgrades). There is not salvage value. If the external reinvestment rate of 8% is available, what is the rate of return for this project using the ERR method? $250,000 $65,000 $65,000 $65,000 $65,000 TITT $60,000 $50,000 $50,000
A new machine will cost P17000 and will have an estimated salvage value of P11000 in five years. Special tools for the new machine will cost P5000 and will have a resale value of P2500 at the end of five years. Maintenance costs are estimated at P200 per yr. What will be the average annual cost of ownership during the next five years if interest is 6%?
Cost estimates for a porposed public facility are being evaluated. Initial construction cost is anticipated to be $120,000 and annual maintenance expenses are expected to be $6500 for the first 20 years and $2000 for every year thereafter. The facility is to be used and maintained for an indefinite period of time. Using an interest rate of 10% per year, the capitalized cost of this facility is most nearly? a. $180,000 b. $190,000 c. $200,000 d. $270,000
A proposed project requires an investment of $215,000 and will require an additional $25,000 for upgrades in year six. The income from the project is expected to be $64,000 in years one through five and $52,000 in years seven and eight. In year six, revenue equaled expenses (exclusive of the $25,000 spent for upgrades). There is no salvage value. If the external reinvestment rate (ε) of 6% is available, what is the rate of return for this project using the ERR method?

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