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 this initial 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 life of the structure is 35 years with zero salvage value.
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 this
initial 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 life
of 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 and
replaced 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 that
they will be alike. The property Taxes will be 4%. Money is worth 20%.
Which plan would you recommend? Use Present worth of Cost Method.
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