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uilding of 12,500 s annual maintenan I maintenance cos s (starting 18 vear

uilding of 12,500 s annual maintenan I maintenance cos s (starting 18 vear

FINANCIAL ACCOUNTING
FINANCIAL ACCOUNTING
10th Edition
ISBN:9781259964947
Author:Libby
Publisher:Libby
Chapter1: Financial Statements And Business Decisions
Section: Chapter Questions
Problem 1Q
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CB Electronix needs to expand its capacity. It has two feasible alternatives under consideration. Both alternatives will have essentially infinite lives. Alternative 1: Construct a new building of 20,000 square metres now. The first cost will be $1,900,000. Annual maintenance costs will be $8,000. In addition, the building will need to be painted every 18 years (starting in 18 years) at a cost of $15,000. Alternative 2: Construct a new building of 12,500 square metres now and an additional 7,500 square metres in 8 years. The first cost of the 12,500-square-metre building will be $1,350,000. The annual maintenance costs will be $3,000 for the first 8 years (i.e., until the addition is built). The 7,500-square-metre addition will have a first cost of $1,300,000. Annual maintenance costs of the renovated building (the original building and the addition) will be $9,000. The renovated building will cost $15,000 to repaint every 18 years (starting 18 years after the addition is done). Carry out an annual worth comparison of the two alternatives. Which is preferred if the MARR is 15 percent? Click the icon to view the table of compound interest factors for discrete compounding periods when i = 15%. The total annual cost of Alternative 1 is $ The total annual cost of Alternative 2 is $ V is the better choice. (Round to the nearest whole number as needed.)
Transcribed Image Text:CB Electronix needs to expand its capacity. It has two feasible alternatives under consideration. Both alternatives will have essentially infinite lives. Alternative 1: Construct a new building of 20,000 square metres now. The first cost will be $1,900,000. Annual maintenance costs will be $8,000. In addition, the building will need to be painted every 18 years (starting in 18 years) at a cost of $15,000. Alternative 2: Construct a new building of 12,500 square metres now and an additional 7,500 square metres in 8 years. The first cost of the 12,500-square-metre building will be $1,350,000. The annual maintenance costs will be $3,000 for the first 8 years (i.e., until the addition is built). The 7,500-square-metre addition will have a first cost of $1,300,000. Annual maintenance costs of the renovated building (the original building and the addition) will be $9,000. The renovated building will cost $15,000 to repaint every 18 years (starting 18 years after the addition is done). Carry out an annual worth comparison of the two alternatives. Which is preferred if the MARR is 15 percent? Click the icon to view the table of compound interest factors for discrete compounding periods when i = 15%. The total annual cost of Alternative 1 is $ The total annual cost of Alternative 2 is $ V is the better choice. (Round to the nearest whole number as needed.)
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