James, the plant manager at Global Foundries (GF), received estimates from two contractors to improve traffic flow
Question:
James, the plant manager at Global Foundries (GF), received estimates from two contractors to improve traffic flow and repave the parking areas at his production facility. Proposal A includes new curbs, grading, and paving at an initial cost of $250,000. The expected life of the parking lot surface is 4 years with annual costs for maintenance and repainting of strips of $3000. According to proposal B, the pavement has a higher quality and an expected life of 12 years. The annual maintenance cost will be negligible for the parking area, but the markings will have to be repainted every 2 years at a cost of $5000. The MARR is 12% per year.
(a) How much can GF afford to spend on proposal B for the two proposals to break even?
(b) Proposal B first cost came in at $700,000. Now, what is the breakeven initial cost for proposal A, if all other estimates are correct?
MARRMinimum Acceptable Rate of Return (MARR), or hurdle rate is the minimum rate of return on a project a manager or company is willing to accept before starting a project, given its risk and the opportunity cost of forgoing other...
Step by Step Answer:
a Set AW A AW B with P B first cost of B The final term i...View the full answer
