Question
Suppose that your business is deciding between two different office buildings with unequal lives and has a discount rate of 10%. Building one has a
Suppose that your business is deciding between two different office buildings with unequal lives and has a discount rate of 10%. Building one has a cost of $500,000, annual operating costs of $20,000, depreciation costs of $50,000 annually, and a useful life of 10 years after which the building has no salvage value. Building two has a cost of $1,000,000, annual operating costs of $10,000, depreciation costs of $50,000 annually, and a useful life of 20 years after which the building has no salvage value. Assume that your business has a tax rate of 25%. The net present value of building one is __________ and the net present value of building two is _________. The equivalent annual cost of building one is ____________ and the equivalent annual cost of building two is ____________. Based on the above information, we should select _________ as it has the lowest ___________.
-$515,361.42; -$957,432.18; $83,872.70; $112,459.62; Building 2; net present value
-$515,361.42; -$777,432.18; $83,872.70; $98,459.62; Building 1; equivalent annual cost
-$515,361.42; -$957,432.18; $83,872.70; $112,459.62; Building 1; equivalent annual cost
-$515,361.42; -$957,432.18; $83,872.70; $112,459.62; Building 2; equivalent annual cost
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