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In: Economics

Question 2 RTA is considering two options for its new office blocie High Initial Cost M...

Question 2 RTA is considering two options for its new office blocie High Initial Cost M & Costs = $ 4.5M / (ye) year ; Benefit = $ 11 M/year Disbenefits =$ 2M per year Life = 10 years ; Low Rise: Initial Cost= $ 54 M; M &O Costs =$ 3.5 M /year ; $ 15 Myear ; Disbenefits =$ 4.5 Mper year 20 years . Use j=11\% for both options .

Solutions

Expert Solution

Here,

High Rise Low Rise
Initial Cost $20M $54 M
O&M Cost $4.5 M/ year $3.5 M /year
Benefit $11 M/ year $15M/ year
Disbenefit $2 M/ year $4.5 M / year
Life 10 yrs 20 years
i 11%

since, initial cost of high rise is not given it is assumed to be 20 m

Cash flow

High Rise Low Rise
20-04-2020 Year 0 -20000000 -54000000
20-04-2021 Year 1 4500000 7000000
20-04-2022 Year 2 4500000 7000000
20-04-2023 Year 3 4500000 7000000
20-04-2024 Year 4 4500000 7000000
20-04-2025 Year 5 4500000 7000000
20-04-2026 Year 6 4500000 7000000
20-04-2027 Year 7 4500000 7000000
20-04-2028 Year 8 4500000 7000000
20-04-2029 Year 9 4500000 7000000
20-04-2030 Year 10 4500000 7000000
20-04-2031 Year 11 7000000
20-04-2032 Year 12 7000000
20-04-2033 Year 13 7000000
20-04-2034 Year 14 7000000
20-04-2035 Year 15 7000000
20-04-2036 Year 16 7000000
20-04-2037 Year 17 7000000
20-04-2038 Year 18 7000000
20-04-2039 Year 19 7000000
20-04-2040 Year 20 7000000
XIRR 18.31% 11.48%

From above high rise looks better but as the initial cost change the result might be different

Rahul Sunny answered 8 months ago
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