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(10 marks] Question 1 A project engineer with EnvironCare is assigned to start up a new office in Vancouver where a 6-year contract has been
(10 marks] Question 1 A project engineer with EnvironCare is assigned to start up a new office in Vancouver where a 6-year contract has been finalized to collect and analyze ozone-level readings. Two lease options are available, each with a first cost, annual lease cost, and deposit-return estimates shown below (assume ordinary annuity). The discount rate is 15% per year. Assume ordinary annuity and round to the nearest cent. Location A Location B First cost, $ -15,000 -18,000 Annual lease cost, $ per year -3,500 -3,100 Deposit return, $ 1,000 2,000 Lease term, years 6 9 A. EnvironCare has a practice of evaluating all projects over a 5-year period. If the deposit returns are not expected to change, which location should be selected? [3 marks] B. Perform the analysis using an 8-year planning horizon. For Location A, an estimate for equivalent service for the additional two years is needed. Assume this is expected to be relatively expensive at $6,000 per year. [3 marks] C. Determine which lease option should be selected on the basis of a present value comparison using the LCM. (4 marks] (10 marks] Question 1 A project engineer with EnvironCare is assigned to start up a new office in Vancouver where a 6-year contract has been finalized to collect and analyze ozone-level readings. Two lease options are available, each with a first cost, annual lease cost, and deposit-return estimates shown below (assume ordinary annuity). The discount rate is 15% per year. Assume ordinary annuity and round to the nearest cent. Location A Location B First cost, $ -15,000 -18,000 Annual lease cost, $ per year -3,500 -3,100 Deposit return, $ 1,000 2,000 Lease term, years 6 9 A. EnvironCare has a practice of evaluating all projects over a 5-year period. If the deposit returns are not expected to change, which location should be selected? [3 marks] B. Perform the analysis using an 8-year planning horizon. For Location A, an estimate for equivalent service for the additional two years is needed. Assume this is expected to be relatively expensive at $6,000 per year. [3 marks] C. Determine which lease option should be selected on the basis of a present value comparison using the LCM. (4 marks]
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