Question
please solve by hand A construction company is deciding if they should make a new building bronze, silver, or gold LEED-certified, or not at all.
please solve by hand
A construction company is deciding if they should make a new building bronze, silver, or gold LEED-certified, or not at all. Regardless of the level of certification, this new building will generate extra annual revenues of $40,000 starting at the end of the first year due to intended business operation. In terms of operational cost, each option offers different levels of annual energy savings (can be taken as annual incomes), but also different operation and maintenance costs. Please also note that a building with no certification will have no energy savings, but energy costs. Further, the government offers different tax credits depending on the level of environmental consciousness. Please note that all annual costs and savings begin at the end of year 3 and extend until the end of the operation life. The buildings are intended to operate for 20 years, and the company has a minimum attractive rate of return (MARR) of 5%. The following data is available for each option:
Certification | Initial Cost | Energy Savings | Annual Operation and Maintenance costs | Environmental Tax Credit | Salvage value |
No Certification | $320,000 | -$13,000 | $8,000 | $0 | $180,000 |
Bronze | $630,000 | $16,400 | $13,000 | $5,000 | $430,000 |
Silver | $880,000 | $29,400 | $21,500 | $10,000 | $660,000 |
Gold | $1,040,000 | $51,300 | $29,500 | $15,000 | $750,000 |
Find the best alternative using incremental IRR analysis.
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