event_09_risk_key - Event 9 Evaluating Projects with Risk...

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1 Event 9 Evaluating Projects with Risk The Plan A downtown business is considering purchasing and operating a parking garage for its employees. The garage has 500 spaces. There are currently 250 employees; however, the number of employees is growing at the rate of 50 employees per year. Assume 250 in first year, 300 in second, and so on. The garage will be sold after five years. The purchase cost of a parking garage with 500 spaces is $3,400,000. The price for the garage will be paid immediately. The company is currently paying for employee parking in a different garage at a cost of $3000 a year per employee. When the garage is purchased the employees will use the new garage. This represents a savings to the company. Any garage spaces not used by employees will be rented to other persons working downtown at a rate of $1000 per year. Annual operating cost for the garage is $150,000 in the first year, but it will increase by 5% in each subsequent year. (i.e. the cost in each year is 5% greater than in the previous year.) The company must provide $200,000 in working capital. Working capital is contributed at the beginning of the project, but it is returned at the end. After five years the garage will be sold for $1,500,000. The expression for the net present worth (in $1000) for the project is: NPW = -3400 + 250*3(P/A, i , 5) + 50*3(P/G, i , 5) + 250*1(P/A, i , 5) - 50*1(P/G, i , 5) – 150(P/G, i , 0.05,5) – 200 + 200(P/F, i , 5) + 1500(P/F, i , 5) Construct a deterministic model for this situation using the Economics add-in . Use a geometric gradient series for the term involving operating cost. The company’s MARR is
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This note was uploaded on 05/13/2010 for the course ME 01953 taught by Professor Bard during the Spring '10 term at University of Texas at Austin.

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event_09_risk_key - Event 9 Evaluating Projects with Risk...

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