Assume that Walmart Inc. has decided to surface and maintain for 10 years a vacant lot next to one of its stores to serve as a parking lot for customers. Management is considering the following bids involving two different qualities of surfacing for a parking area of 11,300 square yards. Bid A: A surface that costs $5.25 per square yard to install. This surface will have to be replaced at the end of 5 years. The annual maintenance cost on this surface is estimated at 25 cents per square yard for each year except the last year of its service. The replacement surface will be similar to the initial surface. Bid B: A surface that costs $10.75 per square yard to install. This surface has a probable useful life of 10 years and will require annual maintenance in each year except the last year, at an estimated cost of 12 cents per square yard. Click here to view factor tables. Compute present value of the bids. You may assume that the cost of capital is 12%, that the annual maintenance expenditures are incurred at the end of each year, and that prices are not expected to change during the next 10 years. (Round factor values to 5 decimal places, e.g. 1.25124 and final answer to 0 decimal places, e.g. 458,581.) Present value of outflows for Bid A $ 125368 Present value of outflows for Bid B $ 121922.17
Assume that Walmart Inc. has decided to surface and maintain for 10 years a vacant lot next to one of its stores to serve as a parking lot for customers. Management is considering the following bids involving two different qualities of surfacing for a parking area of 11,300 square yards. Bid A: A surface that costs $5.25 per square yard to install. This surface will have to be replaced at the end of 5 years. The annual maintenance cost on this surface is estimated at 25 cents per square yard for each year except the last year of its service. The replacement surface will be similar to the initial surface. Bid B: A surface that costs $10.75 per square yard to install. This surface has a probable useful life of 10 years and will require annual maintenance in each year except the last year, at an estimated cost of 12 cents per square yard. Click here to view factor tables. Compute present value of the bids. You may assume that the cost of capital is 12%, that the annual maintenance expenditures are incurred at the end of each year, and that prices are not expected to change during the next 10 years. (Round factor values to 5 decimal places, e.g. 1.25124 and final answer to 0 decimal places, e.g. 458,581.) Present value of outflows for Bid A $ 125368 Present value of outflows for Bid B $ 121922.17
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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Transcribed Image Text:Assume that Walmart Inc. has decided to surface and maintain for 10 years a vacant lot next to one of its stores
to serve as a parking lot for customers. Management is considering the following bids involving two different
qualities of surfacing for a parking area of 11,300 square yards.
Bid A: A surface that costs $5.25 per square yard to install. This surface will have to be replaced at the end of 5
years. The annual maintenance cost on this surface is estimated at 25 cents per square yard for each year
except the last year of its service. The replacement surface will be similar to the initial surface.
Bid B: A surface that costs $10.75 per square yard to install. This surface has a probable useful life of 10 years
and will require annual maintenance in each year except the last year, at an estimated cost of 12 cents per
square yard.
Click here to view factor tables.
Compute present value of the bids. You may assume that the cost of capital is 12%, that the annual maintenance
expenditures are incurred at the end of each year, and that prices are not expected to change during the next 10
years. (Round factor values to 5 decimal places, e.g. 1.25124 and final answer to 0 decimal places, e.g.
458,581.)
Present value of outflows for Bid A
$
125368
Present value of outflows for Bid B
$
121922.17
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