The Philippine Society of Mechanical Engineers is planning to construct its own building. Two proposals are being considered: (a) The construction of the building now cost P400,000. (b) The construction of a smaller building now, to cost P300,000 and at the end of 5 years, an extension to be added to cost P200,000. Which proposal is more economical if interest is 20%, depreciation is disregarded and by how much?

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A: Answer is given below

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