Robertson Construction Company is considering two projects upon which to bid. The first is for 5-year renovation of an aging government building. For Robertson to do this job they will need to invest $1.2 million into various equipment (with the total salvage value being approximately $50,000, with yearly operations cost beginning at $5,000 in year 1, and increasing by $500 each year of the project). The second is the building of a library which is expected to take 7 years and will require a $1.6 million dollar investment (salvage being $80,000 at the end of 7 years with yearly operations cost at $4,000). Assume that almost identical renovation projects come up every 5 and 7 years respectively. Robertson has a MARR of 10% a) Robertson has been asked to quote an annual price that each project will cost. What is the minimum annual price Robertson should ask for if each project will be worth their while? Include all your calculations for this. b) If these projects were mutually exclusive which would Robertson Construction Company prefer?
Robertson Construction Company is considering two projects upon which to bid. The first is for 5-year renovation of an aging government building. For Robertson to do this job they will need to invest $1.2 million into various equipment (with the total salvage value being approximately $50,000, with yearly operations cost beginning at $5,000 in year 1, and increasing by $500 each year of the project). The second is the building of a library which is expected to take 7 years and will require a $1.6 million dollar investment (salvage being $80,000 at the end of 7 years with yearly operations cost at $4,000). Assume that almost identical renovation projects come up every 5 and 7 years respectively. Robertson has a MARR of 10%
a) Robertson has been asked to quote an annual price that each project will cost. What is the minimum annual price Robertson should ask for if each project will be worth their while? Include all your calculations for this.
b) If these projects were mutually exclusive which would Robertson Construction Company prefer?
Step by step
Solved in 2 steps
