Question
31. Calculating EAC (L07) You are considering two different methods for constructing a new warehouse site. The first method would use prefabricated building segments, would
31. Calculating EAC (L07) You are considering two different methods for constructing a new warehouse site. The first method would use prefabricated building segments, would have an initial cost of $6.5 million, would have annual maintenance costs of $150,000, and would last for 25 years. The second alternative would employ a new carbon-fibre panel technology, would have an initial cost of $8.2 million, would have maintenance costs of $650,000 every ten years, and is expected to last 40 years. Both buildings would be in CCA Class 1 (at a rate of 4%) and it is expected that each would have a salvage value equivalent to 25% of its construction cost at the end of its useful life. The discount rate the firm uses in evaluating projects is 11%. The tax rate is 35%. What is the annual cost for each option, and which would you pick?
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