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A factory building is located in an area subject
Chapter , Problem 10-43(choose chapter or problem)
A factory building is located in an area subject tooccasional flooding by a nearby river. You have beenbroughtin as a consultantto determine whetherflood-proofingof the building is economicallyjustified.Thealternatives are as follows:A.Do nothing. Damage in a moderate flood is$10,000 and in a severe flood, $25,000.B.Alter the factory building at a cost of $15,000to withstand moderate flooding without damageand to withstand severe flooding with $10,000damages. C.Alter the factory building at a cost of $20,000 towithstand a severe flood without damage.In any year the probability of flooding is as follows:0.70, no flooding of the river; 0.20, moderate flood-ing; and 0.10, severe flooding. If interest is 15%and a 15-year analysis period is used, what do yourecommend?
Questions & Answers
QUESTION:
A factory building is located in an area subject tooccasional flooding by a nearby river. You have beenbroughtin as a consultantto determine whetherflood-proofingof the building is economicallyjustified.Thealternatives are as follows:A.Do nothing. Damage in a moderate flood is$10,000 and in a severe flood, $25,000.B.Alter the factory building at a cost of $15,000to withstand moderate flooding without damageand to withstand severe flooding with $10,000damages. C.Alter the factory building at a cost of $20,000 towithstand a severe flood without damage.In any year the probability of flooding is as follows:0.70, no flooding of the river; 0.20, moderate flood-ing; and 0.10, severe flooding. If interest is 15%and a 15-year analysis period is used, what do yourecommend?
ANSWER:Problem 10-43
A factory building is located in an area subject to occasional flooding by a nearby river. You have been brought in as a consultant to determine whether flood-proofing of the building is economically justified. The alternatives are as follows: A. Do nothing. Damage in a moderate flood is $10,000 and in a severe flood, $25,000. B. Alter the factory building at a cost of $15,000 to withstand moderate flooding without damage and to withstand severe flooding with $10,000 damages. C. Alter the factory building at a cost of $20,000 to withstand a severe flood without damage. In any year the probability of flooding is as follows: 0.70, no flooding of the river; 0.20, moderate flooding; and 0.10, severe flooding. If interest is 15% and a 15-year analysis period is used, what do you recommend?
Step by Step Solution
Step 1 of 5
The cost of construction of a factory building is known as the cost of factory building. This cost serves as an initial outlay for the purpose of evaluating a capital budgeting problem. It is required to be deducted from the present value of cash inflows to get the net present value.