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08 ModelHW8

# 08 ModelHW8 - 17.5 The U.S government is considering...

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17.5) The U.S. government is considering building apartments for government employees working in a foreign country and living in locally owned housing. A comparison of two possible buildings indicated the following: Building X Building Y \$8,000,000 \$12,000,000 \$240,000 \$180,000 \$1,960,000 \$1,320,000 Assume the salvage value or sale value of the apartments to be 60% of the first investment. Use 10% and a 20-year study period to compute the B/C ratio on incremental investment and make a recommendation. (Assume no do-nothing alternative.) 0 1 2 3 4 5 X-Out \$8,000,000 \$240,000 \$240,000 \$240,000 \$240,000 \$240,000 X-In \$1,960,000 \$1,960,000 \$1,960,000 \$1,960,000 \$1,960,000 X(B) \$1,781,818 \$1,619,835 \$1,472,577 \$1,338,706 \$1,217,006 X(cost) \$8,000,000 \$218,182 \$198,347 \$180,316 \$163,923 \$149,021 X(I) \$8,000,000 C' \$2,043,255 X-BC(10%) 1.73 Y-Out \$12,000,000 \$180,000 \$180,000 \$180,000 \$180,000 \$180,000 Y-In \$1,320,000 \$1,320,000 \$1,320,000 \$1,320,000 \$1,320,000 Y(B) \$1,200,000 \$1,090,909 \$991,736 \$901,578 \$819,616 Y(cost) \$12,000,000 \$163,636 \$148,760 \$135,237 \$122,942 \$111,766 Y(I) \$12,000,000 C' \$1,532,441 Y-BC(10%) 0.91 BC(10%)X-Y (1.46) Since Building Y has a negative BC value, it must be discarded as an option and Building X must be se Original Investment by government agencies Estimated annual maintenance costs Savings in annual rent now being paid to house employees

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6 7 8 9 10 11 12 \$240,000 \$240,000 \$240,000 \$240,000 \$240,000 \$240,000 \$240,000 \$1,960,000 \$1,960,000 \$1,960,000 \$1,960,000 \$1,960,000 \$1,960,000 \$1,960,000 \$1,106,369 \$1,005,790 \$914,354 \$831,231 \$755,665 \$686,968 \$624,516 \$135,474 \$123,158 \$111,962 \$101,783 \$92,530 \$84,119 \$76,471 \$180,000 \$180,000 \$180,000 \$180,000 \$180,000 \$180,000 \$180,000 \$1,320,000 \$1,320,000 \$1,320,000 \$1,320,000 \$1,320,000 \$1,320,000 \$1,320,000 \$745,106 \$677,369 \$615,790 \$559,809 \$508,917 \$462,652 \$420,593 \$101,605 \$92,368 \$83,971 \$76,338 \$69,398 \$63,089 \$57,354 elected.
13 14 15 16 17 18 19 \$240,000 \$240,000 \$240,000 \$240,000 \$240,000 \$240,000 \$240,000 \$1,960,000 \$1,960,000 \$1,960,000 \$1,960,000 \$1,960,000 \$1,960,000 \$1,960,000 \$567,742 \$516,129 \$469,208 \$426,553 \$387,776 \$352,523 \$320,476 \$69,519 \$63,200 \$57,454 \$52,231 \$47,483 \$43,166 \$39,242 \$180,000 \$180,000 \$180,000 \$180,000 \$180,000 \$180,000 \$180,000 \$1,320,000 \$1,320,000 \$1,320,000 \$1,320,000 \$1,320,000 \$1,320,000 \$1,320,000 \$382,357 \$347,597 \$315,998 \$287,270 \$261,155 \$237,414 \$215,831 \$52,140 \$47,400 \$43,091 \$39,173 \$35,612 \$32,375 \$29,431

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20 \$240,000 \$6,760,000 \$1,004,831 \$17,400,074 \$35,674 \$10,043,255 \$180,000 \$8,520,000 \$1,266,444 \$12,308,138 \$26,756 \$13,532,441
17.8) The federal government is planning a hydroelectric project for a river basin.

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08 ModelHW8 - 17.5 The U.S government is considering...

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