Question
A company is planning to expand its capacity and they asked you to consider and recommend one of two feasible alternatives. Alternative A will involve
A company is planning to expand its capacity and they asked you to consider and recommend one of two feasible alternatives. Alternative A will involve the construction of a new 25,000 m2 building immediately. The initial investment of this alternative is $2,160,000 and the building will require annual maintenance costs of $9,000. In addition, the building will need to be painted every 15 years (starting in year 15) at a cost of $16,000. Alternative B will involve the construction of a new 12,000 m2 building immediately and an additional 8,000 m2 in 10 years. The initial investment to build the new 12,000 m2 building will cost $1,250,000 and the building will require annual maintenance costs of $6,000 for the first 10 years (i.e., until the second phase of the building is built). The additional 8,000 m2 construction will require an investment of $1,100,000. The annual maintenance costs of the original building and the addition will be $11,000. The renovated building will cost $15,000 to repaint every 15 years starting 15 years after the addition is complete. Your boss told you that the company uses a MARR of 14.5% and that you should compare the two alternatives by conducting an annual worth comparison considering infinite lives of the assets.
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