11-4. In planning a small two-story office building, the architect has submitted two designs. The first provides foundation and structural details so that two additional stories can be added to the required initial two stories at a later date and without modifications to the original structure. This building would cost $1,400,000. The second design, without such provisions, would cost only $1,250,000. If the first plan is adopted, an additional two stories could be added at a later date at a cost of $850,000. If the second plan is adopted, however, considerable strengthening and reconstruction would be required, which would add $300,000 to the cost of a two-story addition. Assuming that the building is expected to be needed for 75 years, by what time would the additional two stories have to be built to make the adoption of the first design justified? MARR is 10% per year. (11.2)

 

11-5. Consider these two alternatives.  (11.2)

 

Â	Alternative 1	Alternative 2
Capital investment	$4,500	$6,000
Annual revenues	$1,600	$1,850
Annual expenses	$400	$500
Estimated market	$800	$1,200
value	Â	Â
Useful life	8 years	10 years

 

          Suppose that the capital investment of Alternative 1 is known with certainty. By how much would the estimate of capital investment for Alternative 2 have to vary so that the initial decision based on these data would be reversed? The annual MARR is 15% per year.

 

 

 

           Determine the life of Alternative 1 for which the AWs are equal.