With the following information, draw cash-flow diagrams for two alternatives, an

Question

With the following information, draw cash-flow diagrams for two alternatives, and then determine which building should be selected. Use Benefit/Cost Ratio method. Assume the interest rate is 8% per year. (40 points) Description: Sustainable Building N/A $11M Traditional Building: Building Design Cost Construction Cost Annual Water Consumption Cost $2,500 Annual Energy Consumption Cost $3,000 Annual Operation & Maintenance $$5,000 Periodic Maintenance (Every 25 yrs) $30,000 Annual Revenue Useful Life of the Building $500,000 $9.5M $5,000 $6,500 $10,000 $32,000 $0.90 M 60 years $1.00M 60 years

Explanation / Answer

As per below mentioned calculation, sustainable bulding option should be chosen as its benefit cost ratio is 1.1 as compared to 1.08 for Traditional building

Period Sustainable building Traditional Building Discounting factor Interest 8.00% Discounted Cost(Outflow) Discounted Benefit(Inflow) Discounted Cost(Outflow) Discounted Benefit(Inflow) Head Sustainable building Traditional building 0 $11,000,000 $0 $10,000,000 0 Design Cost 0 $500,000 1 $9,722.22 $925,925.93 $19,907.41 $833,333.33 1.08 Construction cost $11,000,000 $9,500,000 2 $9,002.06 $857,338.82 $18,432.78 $771,604.94 1.17 Annual Water Consuption Cost $2,500 $5,000 3 $8,335.24 $793,832.24 $17,067.39 $714,449.02 1.26 Annual energy consumption cost $3,000 $6,500 4 $7,717.81 $735,029.85 $15,803.14 $661,526.87 1.36 Annual Operation and maintenance $5,000 $10,000 5 $7,146.12 $680,583.20 $14,632.54 $612,524.88 1.47 Periodic maintenance(Every 25 years) $30,000 $32,000 6 $6,616.78 $630,169.63 $13,548.65 $567,152.66 1.59 Annual Renenue $1,000,000 $900,000 7 $6,126.65 $583,490.40 $12,545.04 $525,141.36 1.71 Useful Life of the building 60 60 8 $5,672.82 $540,268.88 $11,615.78 $486,242.00 1.85 9 $5,252.61 $500,248.97 $10,755.35 $450,224.07 2.00 10 $4,863.53 $463,193.49 $9,958.66 $416,874.14 2.16 Benefit Cost Ratio for Sustainable building 1.11 11 $4,503.27 $428,882.86 $9,220.98 $385,994.57 2.33 Benefit Cost Ratio for Traditional building 1.08 12 $4,169.69 $397,113.76 $8,537.95 $357,402.38 2.52 13 $3,860.83 $367,697.92 $7,905.51 $330,928.13 2.72 14 $3,574.84 $340,461.04 $7,319.91 $306,414.94 2.94 15 $3,310.04 $315,241.70 $6,777.70 $283,717.53 3.17 16 $3,064.85 $291,890.47 $6,275.65 $262,701.42 3.43 17 $2,837.82 $270,268.95 $5,810.78 $243,242.06 3.70 18 $2,627.61 $250,249.03 $5,380.35 $225,224.13 4.00 19 $2,432.98 $231,712.06 $4,981.81 $208,540.86 4.32 20 $2,252.76 $214,548.21 $4,612.79 $193,093.39 4.66 21 $2,085.89 $198,655.75 $4,271.10 $178,790.17 5.03 22 $1,931.38 $183,940.51 $3,954.72 $165,546.46 5.44 23 $1,788.31 $170,315.28 $3,661.78 $153,283.76 5.87 24 $1,655.84 $157,699.34 $3,390.54 $141,929.40 6.34 25 $5,913.73 $146,017.90 $7,811.96 $131,416.11 6.85 26 $1,419.62 $135,201.76 $2,906.84 $121,681.59 7.40 27 $1,314.46 $125,186.82 $2,691.52 $112,668.14 7.99 28 $1,217.09 $115,913.72 $2,492.14 $104,322.35 8.63 29 $1,126.94 $107,327.52 $2,307.54 $96,594.77 9.32 30 $1,043.46 $99,377.33 $2,136.61 $89,439.60 10.06 31 $966.17 $92,016.05 $1,978.35 $82,814.44 10.87 32 $894.60 $85,200.05 $1,831.80 $76,680.04 11.74 33 $828.33 $78,888.93 $1,696.11 $71,000.04 12.68 34 $766.98 $73,045.31 $1,570.47 $65,740.78 13.69 35 $710.16 $67,634.54 $1,454.14 $60,871.09 14.79 36 $657.56 $62,624.58 $1,346.43 $56,362.12 15.97 37 $608.85 $57,985.72 $1,246.69 $52,187.15 17.25 38 $563.75 $53,690.48 $1,154.35 $48,321.43 18.63 39 $521.99 $49,713.41 $1,068.84 $44,742.07 20.12 40 $483.32 $46,030.93 $989.67 $41,427.84 21.72 41 $447.52 $42,621.23 $916.36 $38,359.11 23.46 42 $414.37 $39,464.11 $848.48 $35,517.70 25.34 43 $383.68 $36,540.84 $785.63 $32,886.76 27.37 44 $355.26 $33,834.11 $727.43 $30,450.70 29.56 45 $328.94 $31,327.88 $673.55 $28,195.09 31.92 46 $304.58 $29,007.30 $623.66 $26,106.57 34.47 47 $282.02 $26,858.61 $577.46 $24,172.75 37.23 48 $261.13 $24,869.08 $534.69 $22,382.17 40.21 49 $241.78 $23,026.93 $495.08 $20,724.23 43.43 50 $863.51 $21,321.23 $1,140.69 $19,189.11 46.90 51 $207.29 $19,741.88 $424.45 $17,767.69 50.65 52 $191.93 $18,279.52 $393.01 $16,451.57 54.71 53 $177.72 $16,925.48 $363.90 $15,232.93 59.08 54 $164.55 $15,671.74 $336.94 $14,104.57 63.81 55 $152.36 $14,510.87 $311.98 $13,059.78 68.91 56 $141.08 $13,435.99 $288.87 $12,092.39 74.43 57 $130.63 $12,440.73 $267.48 $11,196.66 80.38 58 $120.95 $11,519.20 $247.66 $10,367.28 86.81 59 $111.99 $10,665.92 $229.32 $9,599.33 93.76 60 $103.70 $9,875.85 $212.33 $8,888.27 101.26 Total $11,134,974 $12,376,552 $10,271,451 $11,138,897

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