The county fire department is considering two options (A and B)for upgrading its aging physical facility. Assume an interest rateof 6% per year and 50-year time period.
Option A: Involves remodeling the existing fire station byspending $2,252,000 now. In addition, the cost for personnel andequipment will be $126,000 per year.
Option B: Calls for buying 5 acres of land for building a newfire station. The cost of the land in that area is estimated to be$366,000 per acre. The size of the new fire station would be 9,000square feet with a construction cost of $151.18 per square foot.Contractor fees are expected to be $421,500(Assume all of the costsfor plan B occur at time 0). In addition, the sale of the old siteis to anticipated to net a positive $500,000 five years in thefuture from today.
Q1: Determine the Present Worth of Plan A and Pan B.
Q2: Which plan is better on the basis of present worthanalysis?
