Description of this paper

A manufacturer requires an additional 10,00 square feet of warehouse space.

Description

solution


Question

A manufacturer requires an additional 10,00 square feet of warehouse space. A reinforced-concrete building added to the existing main structure will cost $850,000, whereas the same amount of space can be costructed with a galvanized building for $595,000. The life of the concrete building is estimated at 25 years with a yearly maintenance cost of $23,800. The life of the galvanized building is estimated at 15 years, and the annualized maintenance cost is estimated to be $53,000. Average annual property taxes are 1.2 percent of first costs for the concrete building and 0.5 percent for the metal building. Assume that the salvage value of the concrete building will be zero after 25 years. Compare the present worths of the two warehouse additions, using 12 percent interest rate for a 25-year study period, in determining the minimum salvage value of the galvanized building after 25 years period to make it economically comparable to the concrete building, assuming that its salvage value after 15 years is zero

 

Paper#21689 | Written in 18-Jul-2015

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