A city planning commission is considering two proposals for a new civic center. Proposal 1...
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A city planning commission is considering two proposals for a new civic center. Proposal 1 would require an initial investment of $10 million and a further $4 million ten years from now for expansion.Annual operating costs for the proposed center are expected to be $250,000. Income from the center will be as follows: $190,000 the first year, increase by $20,000 per year for the subsequent 4 years, remain constant to year 10, then rise to $350,000 at year 11 and remain that value for the life of the center. Proposal 2 requires $18 million up front and cost $300,000 annually for maintenance.Revenues will be: $260,000 the first year, increase by $30,000 annually until year 7, then remain at $440,000 for the life of the center. Determine which proposal should be selected on the basis of capitalized cost if the annual interest rate is 6%.
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