You are designing a parking lot for a local state park. The debits/credits associated with two options are given in the table below:
|
Item
|
Option 1 â€" Gravel Surface
|
Option 2 â€" Paved Surface
|
|
Initial Cost
|
$10,753
|
$39,105
|
|
Maintenance
|
$3,386/yr (grading)
|
$3,804/yr (potholes)
|
|
Parking Fees Collected
|
$16,922/yr
|
$16,922/yr
|
|
Service Life
|
60 yrs
|
20 yrs
|
|
Demolition Cost
|
|
$6,473
|
Prepare cash flow diagrams for each option and an incremental cash flow diagram for option 1 â€" option 2. Assuming a cost of money or 3.2%, determine the following:
a. What is the present worth of option 1?
b What is the present worth of option 2?
c. Which is the better option, and why?
d. Perform an annual equivalence analysis for the two options, and state which is the better option and why.
e. Calculate the present worth of the incremental system (1 - 2), and state which option is better and why.