Question
Telefono Mexico is expanding its facilities to serve a new manufacturing plant. The new plant will require 2000 telephone lines this year, and another 2000
"Telefono Mexico is expanding its facilities to serve a new manufacturing plant. The new plant will require 2000 telephone lines this year, and another 2000 lines after expansion in 9 years. The plant will operate for 35 years. Option 1: Provide one cable now with capacity to serve 4000 lines. The cable will cost $22,000 and annual maintenance costs will be $1500. Option 2: Provide a cable with capacity to serve 2000 lines now and a second cable to serve the other 2000 lines in 9 years. Each cable will cost $10,000 and will have an annual maintenance cost of $1300. The telephone cables will last 35 years, and the cost of removing the cables is offset by their salvage value. Which alternative should be selected, assuming a 9% interest rate? Enter the net present cost as a positive number of the option that should be selected."
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