The owner of a downtown parking lot has employed a civil engineering consulting firm to advise him on the economic feasibility of constructing an office building on the site. Betty Samuels, a newly hired civil engineer, has been assigned to make the analysis. She has assembled the following data: Total Net Annual Total Investment* Alternative Revenue Sell parking lot Keep parking lot $ $ 200,000 22,000 Build 1-story building 400,000 60,000 Build 2-story building 555,000 72,000 Build 3-story building 750,000 100,000 1: 075 0 00 105 0 00
The owner of a downtown parking lot has employed a civil engineering consulting firm to advise him on the economic feasibility of constructing an office building on the site. Betty Samuels, a newly hired civil engineer, has been assigned to make the analysis. She has assembled the following data: Total Net Annual Total Investment* Alternative Revenue Sell parking lot Keep parking lot $ $ 200,000 22,000 Build 1-story building 400,000 60,000 Build 2-story building 555,000 72,000 Build 3-story building 750,000 100,000 1: 075 0 00 105 0 00
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
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Transcribed Image Text:8-33 The owner of a downtown parking lot has employed
a civil engineering consulting firm to advise him
on the economic feasibility of constructing an
office building on the site. Betty Samuels, a newly
hired civil engineer, has been assigned to make the
analysis. She has assembled the following data:
Total
Net Annual
Total
Alternative
Investment*
Revenue
$
200,000
$
Sell parking lot
Keep parking lot
Build 1-story building
22,000
400,000
60,000
Build 2-story building
555,000
72,000
Build 3-story building
750,000
100,000
Build 4-story building
875,000
105,000
Build 5-story building
1,000,000
120,000
* Includes the value of the land.
The analysis period is to be 15 years. For all
alternatives, the property has an estimated resale
(salvage) value at the end of 15 years equal to the
present total investment.
(a) Construct a choice table for interest rates from
0% to 100%.
(b) If the MARR is 10%, what recommendation
should Betty make?
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