BCN3753 Florida International XYZ Construction NPV Analysis

User Generated

Nfrrylnaxv

Business Finance

BCN3753

Florida International University

Description

Hello!
I need help in doing these problems for my Financial Management of Construction Organizations Hw, I'll provide lecture slides if need it!

Please find the assignment sheet on the attachment.

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Florida International University BCN3753- Financial Management of Construction Organization Assignment #3 Fall 2019 Assignment #3 Hand-Out Date: September 19, 2019 Due Date: Oct 1, 2019 (11:59 pm) Question 1 (5 points) XYZ Construction, Inc. has asked you to help them select a new backhoe. You have a choice between a Caterpillar one, which costs $55,000 and will save the company $6,000 annually, and a John Deere one, which costs $68,000 and will save the company $7,500 annually. Both machines can be sold at 30% of their original cost after 8-years of useful life. Given the interest rate is 3%, using the NPV analysis to determine which of the backhoe should be purchased? Assignment #3 Page 1 of 3 Florida International University BCN3753- Financial Management of Construction Organization Assignment #3 Fall 2019 Question 2 (5 points) ABC Real Estate Inc. is considering the following three different locations to build a retail store: Land cost Construction cost Annual rental revenue Location A $2,800,000 $3,000,000 $550,000 Location B $4,100,000 $3,900,000 $750,000 Location C $3,600,000 $3,500,000 $650,000 If the company’s minimum attractive rate of return (MARR) is 6%, which location should be selected using the rate-of-return analysis over a 20-year analysis period? Assignment #3 Page 2 of 3 Florida International University BCN3753- Financial Management of Construction Organization Assignment #3 Fall 2019 Questions 3 (5 points) An investor is considering buying some land for $500,000 and constructing an office building on it. Three different buildings are being analyzed. Construction cost Resale value after 20 years Annual net rental income Building Height 2 Stories 5 Stories 10 Stories $700,000 $1,500,000 $3,000,000 $1,500,000 $2,400,000 $4,500,000 75,000 120,000 200,000 Using benefit-cost ratio analysis and an 6% MARR, determine which alternative, if any, should be selected. Assignment #3 Page 3 of 3
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Explanation & Answer

Hi. here is your assignment :) Let me know if you need more help or if you have any questions so that I can explain to you okay :). I am willing to do further explanation if would ask ;)

Question 1:
Caterpillar

A

B

C

D

E

F

G

H

I

1

Year

0

1

2

3

4

5

6

7

8

2

Cost

55000
6000

6000

6000

6000

6000

6000

6000

3

Saving

4

Salvage Value
= 30%*55000

5

Free Cash flow

-55000

6

Interest rate

3%

6000

16500
6000

6000

6000

6000

6000

6000

6000

22500

- Using Excel
54969.50 =NPV(A6,B1:I1)+A5
NPV
Number of Year(n) = 8
NPV = PV of Savings + PV of Salvage Value - Initial Investment = 6000* (1-(1+r)-n/r +
21000/(1+r)n -55000 = 6000* (1 -(1+3%)-8/3% + 16500/(1+3%)8 -55000 = -54969.50
John Deerer

A

B

C

D

E

F

G

H

I

1

Year

0

1

2

3

4

5

6

7

8

2

Cos...


Anonymous
Excellent! Definitely coming back for more study materials.

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