4. The Murphy County Fire Department is consider-ing two options for upgrading i

Question

4. The Murphy County Fire Department is consider-ing two options for upgrading its aging ions on Alameda Avenue and 0 physical fa- cilities. Plan A involves remodeling the fire stat Trowbridge Boulevard that are 57 and 6l years old, respectively. (The industry standard is about 50 esti- mated at $952,000 while the cost of redoing the Trowbridge station is $1.3 million. Plan B calls for buying 5 acres of land somewhere between the two stations, building a new fire station, and selling the land and structures at the previous sites. The cost of land in that area is estimated to be $366,000 per acre. The size of the new fire station would be 9000 square feet with a construction cost of $151.18 per square foot. Contractor fees for overhead. profit, etc. are expected to be $340,000, and architect fees will be $81,500. (Assume all of the costs for plan B occur at time 0.) If plan A is adopted, the extra cost for personnel and equipment will be $126,000 per year. Under plan B, the sale of the old sites is antici- pated to net a positive $500.000 five years in the future. Use an interest rate of 6% per year and a 50-year useful life for the remodeled and new stations to determine which plan is better on the basis of a present worth analysis. years of use for a station.) The cost for remodeling the Alameda station is 3

Explanation / Answer

Evaluating the project:-

Plan A: Remodeling

Cost would be = cost of remodelling + increment cost of persnnel & equipment

=2252000 +126000*PVAF(6%,50yr) =2252000+126000*15.71 = 4231460

Plan B: Purchase

Cost would be = Cost of purhcase + Cost of construction + Contractor Fees + Artitect fees -PV of cash flow on sale of land

=1830000+1360620+ 340000+81500-500000*PVF(6%,5yr) = 3612120+ 500000*.74726 = 3985750

Thus Plan B is better. Since opting plan B has the benefit of $245710

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