I’m stuck on a Economics question and need an explanation.
show your work in detail. The process of getting to the correct answer is almost as important as the correct answer itself.
Solve the following problems from the back of our fourth chapter:
And this additional problem:
A universty is considering an expansion of the facilities for the engineering technology department. The option currently being considered is adding an additional floor to the existing ET buildings. This will involve extensive redesign of the existing buildings to support the additional structure. However, it will not increase the footprint of the school.
Construction costs are estimated to be $12,345,678, and the existing buildings will be unavailable for use between the end of the spring semester and the start of the following fall semester (one summer). Following construction, the existing capacity will be doubled. The expected useful life of this renovated building is 35 years. Additional staff, maintenance, and operation costs (for the extra space) is estimated to be $123,456 during the first year, and is predicted to increase by 5% per year for the next 25 years. After 25 years of growth, these costs will remain flat indefinitely (adjusting only for inflation).
Assume that you’ve been tasked with evaluating this expansion project, and you’re told to consider only the impacts over the first 20 years.
- What is the present value of the expenses?
- Using that PV, what annual expense would that be equivalent to for the next twenty years?
- Using that annual expense (and assuming that the cost of one credit hour is $278.00), how many additional credit hours per year would The universty need to generate in order to justify this expansion?
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