There are two alternatives for the place where a factory will be constructed. For the 1st alternative, the initial cost is $2,830,000. The rent of the area where the plates produced in the factory will be stored is $117,000 per year. It is estimated that the annual operating and maintenance cost of the factory will be $26,500 and the annual energy cost will be $42,500. The economic life of the factory is 8 years. For the 2nd alternative, the initial cost is $3,434,000. The produced plates will be stored inside the factory. It is estimated that the annual operating and maintenance cost of the factory will be $44,500 and the annual energy cost will be $63,000. The economic life of the factory is 6 years. The interest rate of 12% per year compounded quarterly will be used for the payments to be made to the bank. Determine the most economically suitable option using the Net Present Value (NPV) analysis with the least common multiple (LCM) approach. !!Net cash flow diagrams must be drawn!!
There are two alternatives for the place where a factory will be constructed.
For the 1st alternative, the initial cost is $2,830,000. The rent of the area where the plates produced in the factory will be stored is $117,000 per year. It is estimated that the annual operating and maintenance cost of the factory will be $26,500 and the annual energy cost will be $42,500. The economic life of the factory is 8 years.
For the 2nd alternative, the initial cost is $3,434,000. The produced plates will be stored inside the factory. It is estimated that the annual operating and maintenance cost of the factory will be $44,500 and the annual energy cost will be $63,000. The economic life of the factory is 6 years.
The interest rate of 12% per year compounded quarterly will be used for the payments to be made to the bank. Determine the most economically suitable option using the
!!Net cash flow diagrams must be drawn!!
Step by step
Solved in 3 steps with 2 images
