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8) Consider a project that may be constructed to full capacity now or may be constructed in two stages Construction Alternative Costs Two-stage construction Construct

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8) Consider a project that may be constructed to full capacity now or may be constructed in two stages Construction Alternative Costs Two-stage construction Construct first stage now $80,000 Construct second stage 100,000 n years from now Construct full capacity now 120,00 Full-capacity construction Other Factors 1. All facilities will last for 40 years regardless of when they are installed; after 40 years, they will have zero salvage value. 2. The annual cost of operation and maintenance is the same for both two-stage construction and full-capacity construction. 3. Assume an 8% interest rate. Plot age when second stage is constructed versus costs for both alternatives. Mark the breakeven point on your graph. What is the sensitivity of the decision to second-stage construction 16 or more years in the future? 8) Consider a project that may be constructed to full capacity now or may be constructed in two stages Construction Alternative Costs Two-stage construction Construct first stage now $80,000 Construct second stage 100,000 n years from now Construct full capacity now 120,00 Full-capacity construction Other Factors 1. All facilities will last for 40 years regardless of when they are installed; after 40 years, they will have zero salvage value. 2. The annual cost of operation and maintenance is the same for both two-stage construction and full-capacity construction. 3. Assume an 8% interest rate. Plot age when second stage is constructed versus costs for both alternatives. Mark the breakeven point on your graph. What is the sensitivity of the decision to second-stage construction 16 or more years in the future

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