Answered: Bullding Y Bulding X $8,000,000…

FINANCIAL ACCOUNTING

10th Edition

ISBN:9781259964947

Author:Libby

Publisher:Libby

Chapter1: Financial Statements And Business Decisions

Section: Chapter Questions

Problem 1Q

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Question

The U.S. government is considering building apartments for its employees
working in a foreign country and currently living in locally owned housing.

A comparison of two possible buildings indicates the following:

Assume the salvage or sale value of the apartments to be 60% of the first
investment. Use 10% and a 20-ycar study period to compute the B/C ratio on
incremental investment, and make a recommendation as to the best option. (Do not assume a do-nothing alternative.)

Bullding Y
Bulding X
$8,000,000
Original investment by government agencies
$12,000,000
Estimated annual maintenance costs
$240,000
$180,000
Savings in annual rent now being paid to
house employees
$1,960,000
$1,320,000

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