Jack Elementary has plans to build a new playground in 2021. The school received a $120,000 government grant to be used for building the playground. They hope to break ground in May 2021 and complete the project by the start of school in September. Before they can start the project, however, they must dismantle the existing playground that no longer meets current safety standards. They also plan to complete soil testing once the existing playground is dismantled, as several residential properties in the community have tested positive for soil contamination. Due to recent news articles, parents are concerned about the potential for soil contamination and are demanding a full test to ensure their kids are not playing on a contaminated playground.

Rayna May, the principal, has compiled the following estimates for the new playground:

Cost for dismantling existing equipment	$22,000
Salvage value from selling the metal from existing equipment	$7,000
Soil testing	$18,000
New playground equipment	$45,000
Cost of installation	$16,000
Cost of resurfacing play area in rubber	$55,000
Cost of landscaping (including $5,000 for gravel)	$22,000
Cost of removing and replacing soil	$73,000

The costs for installation, resurfacing, landscaping, and soil removal are the costs quoted by professional contractors. Ms. May was approached by the president of the student council, Jay Wong, who has volunteered the councils time for installing and landscaping the new playground. This will save the school approximately $25,000 in costs and May has decided to accept this offer, as two of the council members who will be helping are journeymen carpenters.

The school has two options for dealing with the potentially contaminated soil. The first option is to forgo the soil testing and simply resurface the play area with a poured-rubber matting that can cover the entire play surface. This will cost approximately $55,000a significant portion of the playground budget. The other option is to perform the soil testing and address the outcome if needed. A municipal worker has estimated that there is a 40% chance that the soil is contaminated. If the soil proves to be contaminated, the school will either need to resurface the area with rubber matting for $55,000, or it can have the contaminated soil removed and replaced for $73,000 plus the cost of gravel. Rayna is wondering what they should do and has asked for your help.

Required

Prepare an analysis of the potential project costs for the following scenarios. Note: There is no need for gravel if the play area is resurfaced. However, if the soil is not contaminated or if they need to remove and replace the soil, the gravel will be needed.

1. Resurface the ground without testing the soil.

2. Complete the soil testing. In this case there are two options:

a. Complete the soil testing and remove/replace the soil if contaminated.

b. Complete the soil testing and resurface if contaminated.

Use the probabilities provided by the municipal worker to determine a weighted cost for each of these outcomes.

3. What option would you recommend for the school? Why? What other non-financial considerations might you need to include in your decision?