6. A sports complex is to be constructed. Two plans are under consideration. Plan A is to construct a three-storey building with provision for adding 12 stories at a future date. The cost of this initial building is P 3,100,000. In 10 years, the 12 stories can be added at a cost of P 10,200,000. The life of the structure is 35 years with zero salvage value. Plan B is to construct for P 1,110,000 three-storey building which will be demolished after 10 years and replaced by a 15-storey structure at a cost of P 18,300,000. The life of the structure is 35 years. Maintenance on Plan A will be P 40,000 and Plan B P 35,000 per year for the first 10 years, and after they be alike. The property taxes will be 4% and money is worth 20%. Which plan would you recommend? EL

6. A sports complex is to be constructed. Two plans are under consideration. Plan A is to construct a three-storey building with provision for adding 12 stories at a future date. The cost of this initial building is P 3,100,000. In 10 years, the 12 stories can be added at a cost of P 10,200,000. The life of the structure is 35 years with zero salvage value. Plan B is to construct for P 1,110,000 three-storey building which will be demolished after 10 years and replaced by a 15-storey structure at a cost of P 18,300,000. The life of the structure is 35 years. Maintenance on Plan A will be P 40,000 and Plan B P 35,000 per year for the first 10 years, and after they be alike. The property taxes will be 4% and money is worth 20%. Which plan would you recommend? EL

Essentials Of Investments

11th Edition

ISBN:9781260013924

Author:Bodie, Zvi, Kane, Alex, MARCUS, Alan J.

Publisher:Bodie, Zvi, Kane, Alex, MARCUS, Alan J.

Chapter1: Investments: Background And Issues

Section: Chapter Questions

Problem 1PS

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A sports complex is to be constructed. Two plans are under consideration:Plan I is to construct a three-storey building with provision for adding 12 stories at a future date. The cost of thisinitial building is P 3,100,000.00. In 10 years the 12 stories can be added at a cost of P 10,200,000.00. The lifeof the structure is 35 years with zero salvage value.Plan II is to construct for P 1,110,000.00 a three-storey building which will be demolished after 10 years andreplaced by a 15-storey structure at a cost of P 18,300,000.00. the life of the structure is 35 years.The maintenance of Plan I will be P 40,000.00 and Plan II is P 35,000.00 per year for the first 10 years. After thatthey will be alike. The property Taxes will be 4%. Money is worth 20%.Which plan would you recommend? Use Present worth of Cost Method.
A Project study for the construction of an engineering building are under consideration. Based on the study the cost of the building is P6,500,000 with a life of 30 years and a salvage value of P 400,000. Yearly maintenance and repair is P 18,000. If the yield of investment is 6%, determine the future worth cost.
A site is under consideration for a bridge over a small river. The suspension bridge will cost $500M with annual inspection and maintenance cost of $350,000. In addition, the concrete deck would have to be reconstructed every 10 years at a cost of $1M. The cost of purchasing the right of way is expected to be $20M. find the capitalized cost.
An organization is planning to put up its own building. Two proposals being considered are:A. The construction of the building now to cost P 400,000 B. The construction of a smaller building now to cost P300,000 and at the end of 5 years, anextension to be added to cost P 200,000.By how much is proposal B more economical than proposal A if interest rate is 20% and depreciation to be neglected?
A commercial building is proposed to be built in a subdivision. The initial cost is estimated to be P20,500,000.00 with annual maintenance and operational cost of P480,000.00. For austhetic view, it is necessary to be painted every five years at a cost of P500,000.00. Annual income from tenants is expected to be P3,200,000.00. Assuming an annual interest rate of 9% and a 30-year planning horizon, find the benefit - cost ratio.
A project study for the construction of an engineering building are under consideration. Based on the study the cost of the building is P6,500,000 with a life of 30 years and a salvage value of P400,000. Yearly maintenance and repair is P18,000. If the yield of the investment is 6%, determine the equivalent uniform annual cost. Select the correct response: 485,581.36 O 458,581.36 485,158.36 458,158.36
The required investment cost of a new, large shopping center is $52 million. The salvage value of the project is estimated to be $18 rmillon (the value of the land) The projects life is 18 years and the annual operating expenses ar estimated to be $13 million. The MARR for such projects is 22% per year. What must the minimum annual revenue be to make the shopping center a worthwhile venture? Click the icon to view the interest and annuity table for discrete compounding when the MARR is 22% per year To make the shopping center a worthwhile venture, the minimum annual revenue must be S milion per year (Round to three decimal places)
An elective project is currently under review. It requires an initial investment of $116,000 for equipment. The profit is expected to be $28,000 each year, over the 6-year project period. The salvage value of the equipment at the end of the project period is projected to be $22,000. Assume a MARR of 10%. Find an IRR for this project.
4. A new bridge connecting Tuguegarao and Solana with a 100 year life is expected to have an initial cost of $20 M. The bridge must be resurfaced every five years at a cost of $ 1 M. The annual inspection and operating costs are estimated to be $50, 000. Determine the present cost of the bridge using the capitalized equivalent approach (that is the life of the bridge as infinite), if the interest rate is 10% per compounded annually. Draw the cashflow diagram.
A company wants to undertake an investment and has two projects under consideration. Project 1 will have a useful life of 7 years whereas project 2 would have a useful life of 6 years. Project 1 would also require an initial investment of GHc300,000 plus an additional repair cost of GHc20,000 on year 6. Project 2 would also require an initial investment of GHc240,000 plus an additional repair cost of GHc25,000 in years 4 and 5. Project 1 and 2 have an estimated salvage value of GHc5000 and GHC3000 respectively. Due to different project risk, project 1 and project 2 would be evaluated at an interest rate of 10% and 12% per year respectively. Project profits are estimated to be GHc100,000 and GHc100,000 per year respectively for both projects starting at the end of year 1 till the end of their respective project lifespans. Using the NPV approach, determine which project the company must invest in.
6. An elective project is currently under review. One alternative requires an initial investment of $116,000 for equipment. The profit is expected to be $28,000 each year, over the 6-year project period. The salvage value of the equipment at the end of the project period is projected to be $22,000. A second alternative requires an initial investment of $60,000 for equipment. The profit is projected to be $16,000 each year, over the 6-year project period. The salvage value of the equipment at the end of the project period is projected to be $14,000. The IRR of this alternative is 18.69%. Determine which alternative is preferred using the appropriate IRR method. Assume a MARR of 10%. Justify your recommendation, based on this method.
A proposed cost-saving device has an installed cost of $905,000. The device will be used in a five-year project but is classified as three-year MACRS property for tax purposes. The required initial net working capital investment is $65,000, the tax rate is 22 percent, and the project discount rate is 9 percent. The device has an estimated Year 5 salvage value of $125,000. What level of pretax cost savings do we require for this project to be profitable? (MACRS schedule) Note: Do not round intermediate calculations and round your answer to 2 decimal places, e.g., 32.16. Required cost savings

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