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