The owner of the AnJ Theater is considering two proposals for upgrading the parking ramps. The first proposal involves asphalt paving of the entire parking area. The initial cost of this proposal would be $ 35000, and it would require annual maintenance of $250 beginning 3 years after installation. The owner expects to have to resurface the theater in 10 years. Resurfacing will cost only $8000, since grading and surface preparation are not necessary, but the $250 annual maintenance cost will continue. Alternatively, gravel can be purchased and spread in the drive areas and grass planted in the parking areas. The owner estimates that 29 metric tons of gravel will be needed per year starting 1 year from now at a cost of $90 per metric ton. In addition, a riding lawn mower, which will cost $2500 and have a life of 10 years, will be needed now. The cost of labor for spreading gravel, cutting grass, etc., is expected to be $900 the first year, $950 the second year and will increase by $50 per year thereafter. If the interest rate is 12% per year, which alternative should be selected? Use a rate of return analysis and a 20-year study period. Follow the format for your answer , Percent Value,SELECTALTERNATIVE. Example; 10.10%, SELECT ASPHALT or 10.11%, SELECT GRAVEL
The owner of the AnJ Theater is considering two proposals for upgrading the parking ramps. The first proposal involves asphalt paving of the entire parking area. The initial cost of this proposal would be $ 35000, and it would require annual maintenance of $250 beginning 3 years after installation. The owner expects to have to resurface the theater in 10 years. Resurfacing will cost only $8000, since grading and surface preparation are not necessary, but the $250 annual maintenance cost will continue.
Alternatively, gravel can be purchased and spread in the drive areas and grass planted in the parking areas. The owner estimates that 29 metric tons of gravel will be needed per year starting 1 year from now at a cost of $90 per metric ton. In addition, a riding lawn mower, which will cost $2500 and have a life of 10 years, will be needed now. The cost of labor for spreading gravel, cutting grass, etc., is expected to be $900 the first year, $950 the second year and will increase by $50 per year thereafter. If the interest rate is 12% per year, which alternative should be selected? Use a
Follow the format for your answer , Percent Value,<space>SELECT<space>ALTERNATIVE. Example; 10.10%, SELECT ASPHALT or 10.11%, SELECT GRAVEL
Trending now
This is a popular solution!
Step by step
Solved in 2 steps
