James, the plant manager at Global Foundries (GF), received estimates from two contractors to improve traffic flow and repave the parking areas at his production facility. Proposal A includes new curbs, grading, and paving at an initial cost of $250,000. The expected life of the parking lot surface is 4 years with annual costs for maintenance and repainting of strips of $3000. According to proposal B, the pavement has a higher quality and an expected life of 12 years. The annual maintenance cost will be negligible for the parking area, but the markings will have to be repainted every 2 years at a cost of $5000. The MARR is 12% per year. (a) How much can GF afford to spend on proposal B for the two proposals to break even? (b) Proposal B first cost came in at $700,000. Now, what is the breakeven initial cost for proposal A, if all other estimates are correct?
James, the plant manager at Global Foundries
(GF), received estimates from two contractors to
improve traffic flow and repave the parking areas
at his production facility. Proposal A includes
new curbs, grading, and paving at an initial cost
of $250,000. The expected life of the parking lot
surface is 4 years with annual costs for maintenance
and repainting of strips of $3000. According
to proposal B, the pavement has a higher
quality and an expected life of 12 years. The annual
maintenance cost will be negligible for the
parking area, but the markings will have to be repainted
every 2 years at a cost of $5000. The
MARR is 12% per year. (a) How much can GF
afford to spend on proposal B for the two proposals
to break even? (b) Proposal B first cost came
in at $700,000. Now, what is the breakeven initial
cost for proposal A, if all other estimates
are correct?
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