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?
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?
Chapter1: Financial Statements And Business Decisions
Section: Chapter Questions
Problem 1Q
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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?
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