Question

1. A construction company is deciding whether to build a road or a building at a new township site. The road will cost $50 million to build in 2019 and will require a re-construction every 5 years of the road’s operation at the cost of $10 million. The annual maintenance costs of the road are $5 million per year for the first ten years of the road’s operation and $7 million per year thereafter. The building will cost $100 million to build and will require major maintenance after every 10 years of operation at the cost of $10 million. The annual maintenance costs of the building are $2 million per year.
2. All construction is completed in the first year (2019)
3. The building and road operate from 2020-2040
4. The discount factor is 9% starting in 2020.

5. Calculate the Net Present Cost using the accompanying spreadsheet.

Assume that:

Answer 1

Road Building Period Annual Maintenance Cost Reconstruction Cost Total Flow Annual Maintenance Cost Major Maintenance Cost Total Flow 100 5 5 13 14 15 10 17 18 19 20 7 10 17 10 9% Net Present Worth= =NPV(E28, 08:D27)+D7 116.32 =NPV(E28,68:G27)+G7 *124.27