A factory needs to increase its facilities and study two alternatives: Alternative 1: Construction of a reinforced concrete shed at a price of $5 million and a useful life of 40 years. The demolition cost $200,000 and its annual maintenance cost is $100,000. Alternative 2: Construction of a masonry shed at a cost of $3 million and a useful life of 40 years with an expected renovation of $2 million at the end of 20 years and a salvage value of $100,000. The annual maintenance cost is $150,000. Considering a TMAR of 20% per year, what is the best alternative
A factory needs to increase its facilities and study two alternatives: Alternative 1: Construction of a reinforced concrete shed at a price of $5 million and a useful life of 40 years. The demolition cost $200,000 and its annual maintenance cost is $100,000. Alternative 2: Construction of a masonry shed at a cost of $3 million and a useful life of 40 years with an expected renovation of $2 million at the end of 20 years and a salvage value of $100,000. The annual maintenance cost is $150,000. Considering a TMAR of 20% per year, what is the best alternative
Chapter1: Making Economics Decisions
Section: Chapter Questions
Problem 1QTC
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A factory needs to increase its facilities and study two alternatives:
Alternative 1: Construction of a reinforced concrete shed at a
Alternative 2: Construction of a masonry shed at a cost of $3 million and a useful life of 40 years with an expected renovation of $2 million at the end of 20 years and a salvage value of $100,000. The annual maintenance cost is $150,000.
Considering a TMAR of 20% per year, what is the best alternative?
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