A civil engineer involved in construction management must decide between two ways to pump concrete up to the top floors of a seven-story office building under construction. Plan 1 requires the purchase of equipment for $6000 which costs between $0.40 and $0.75 per metric ton to operate, with a most likely cost of $0.50 per metric ton. The asset is able to pump 100 metric tons per day. If purchased, the asset will last for 5 years, have no salvage value, and be used 50 days per year. Plan 2 is an equipment-leasing option and is expected to cost the company $2500 per year for equipment with a low cost estimate of $1800 and a high estimateof $3200 per year. In addition, an extra $5 per hour labor cost will be incurred for operating the leased equipment each 8-hour day. Use i = 12% per year. (a) Which plan should the engineer recommend on the basis of the most likely estimates of costs? (b) Will the decision above change if the pessimistic estimates are used?
A civil engineer involved in construction management must decide between two ways to pump concrete up to the top floors of a seven-story office building under construction. Plan 1 requires the purchase of equipment for $6000 which costs between $0.40 and $0.75 per metric ton to operate, with a most likely cost of $0.50 per metric ton. The asset is able to pump 100 metric tons per day. If purchased, the asset will last for 5 years, have no salvage value, and be used 50 days per year. Plan 2 is an equipment-leasing option and is expected to cost the company $2500 per year for equipment with a low cost estimate of $1800 and a high estimate
of $3200 per year. In addition, an extra $5 per hour labor cost will be incurred for operating the leased equipment each 8-hour day. Use i = 12% per year. (a) Which plan should the engineer recommend on the basis of the most likely estimates of costs? (b) Will the decision above change if the pessimistic estimates are used?
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