Question
You are considering two different methods of constructing a new warehouse. The first method uses prefabricated building segments, would have an initial cost of $4.8
You are considering two different methods of constructing a new warehouse. The first method uses prefabricated building segments, would have an initial cost of $4.8 million, would have annual maintenance costs of $100,000 and would last for 25 years. The second alternative would employ a new carbon fibre panel technology, would have an initial cost of $6 million, would have maintenance costs of $525,000 every ten years and is expected to last 40 years. Both buildings are in CCA class 1 (CCA rate of 4%). The salvage value for each would be 25% of initial cost. The firm uses a 15% cost of capital and it has a 38% tax rate. Calculate the NPV for each machine using the six step approach (nearest dollar without dollar sign ($) or comma, e.g. 15000) Negative cash flow is -15000):
What is the NPV for Alternative A?
What is the NPV for Alternative B?
What is the EAC for Alternative A?
What is the EAC for Alternative B?
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