A construction company is bidding on a project comprising five high-rise buildings to be erected one after the other. The company considers the use of advanced, hydraulically operated tunnel forming systems to be purchased and used 40 times on each building over a 1-yr period of time. The tunnel forms cost $30/sf. No salvage value is expected at the end of the 5-yr project. As the two last buildings to be constructed slightly differ in their design, the forms will have to be modified at the cost of $5/sf. Periodical maintenance is expected every 80 uses at a cost of 5% of the purchase cost. Consider an annual interest rate of 4%. What is the expected average material cost per sf for each use?
Solve the following problem. Show work and show answers to at least three decimal places. Solve Problem 20.2 from the book, as modified here: A construction company is bidding on a project comprising five high-rise buildings to be erected one after the other. The company considers the use of advanced, hydraulically operated tunnel forming systems to be purchased and used 40 times on each building over a 1-yr period of time. The tunnel forms cost $30/sf. No salvage value is expected at the end of the 5-yr project. As the two last buildings to be constructed slightly differ in their design, the forms will have to be modified at the cost of $5/sf. Periodical maintenance is expected every 80 uses at a cost of 5% of the purchase cost. Consider an annual interest rate of 4%. What is the expected average material cost per sf for each use?
Hints:
- There is no salvage value.
- The average material cost has three components: purchase cost, modification cost, and maintenance cost.
- Purchase occurs at the start = year 0.
- Modification occurs at the end of the third year = year 3.
- Maintenance occurs at the end of years 2 and year 4. Since this is a five-year project, you cannot use the maintenance formula which assumes unform costs over the life of the forms. Instead, use the modification formula twice: once for year 2 and once for year 4
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