Two methods are being evaluated for constructing a second story floor onto an ex

Question

Two methods are being evaluated for constructing a second story floor onto an existing building at the Pentagon. Method A will use lightweight expanded shale on a metal deck with open web joists and steel beams. For this method, the sots will be $14100 for concrete, $6000 for metal decking, $4300 for joists, and $2600 for beams. Method B will be a reinforced concrete slab that will cost $5200 for concrete, $1400 for rebar, $2600 for equipment rental and $1200 for expendable supplies. Special additives will be included in the lightweight concrete that will improve the heat transfer properties of the floor. If the energy costs for method A will be $600 per year lower than for method B, which one is more attractive at an interest rate of 7% per year over a 20 year study period? Use the B/C method.

Explanation / Answer

Cost for Method A = 14,100 + 6,000 + 4,300 + 2,600 = $27,000

Cost for Method B = 5,200 + 1,400 + 2,600 + 1,200 = $10,400

Incremental Cost for Method A = $27,000-$10,400 = $16,600

Benefits for Method A = 600*PVIFA(7%,20) = 600*10.5940 = $6,356.40

B/C = 6,356.40/16,600 = 0.38

Thus, select Method B

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