The owner of a downtown parking lot has employed a civil engineering consulting

Question

The owner of a downtown parking lot has employed a civil engineering consulting firm to advise him on the economic feasibility of constructing an office building on the site. Betty Samuels, a newly hired civil engineer, has been assigned to make the analysis. She has assembled the following data: The analysis period is to be 15 years. For all alternatives, the property has an estimated resale (salvage) value at the end of 15 years equal to the present total investment. Construct a choice table for interest rates from 0% to 100%. If the MARR is 10%, what recommendation should Betty make?

Explanation / Answer

Solution:

Firstly i would like to provide the solution for question B:

Solution B):

Hence the recommendation is that betty should go ahead with building the 3 story building becasue the net present value of 3 story building is higher than other projects

Solution A)

Different interest rates would be :

Parking LOT Year Cash flow discount 10% Present value 0 -$200,000.00 $1.00 -$200,000.00 1-15 $22,000.00 $7.61 $167,334.20 15th $200,000.00 $0.24 $47,878.41 Net present value $15,212.61

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