Reference no: EM131188069
A bi-level mall is under construction. Installation of only 10 escalators is planned at the start although the ultimate design calls for 16. The question arises whether to provide necessary facilities that would permit the installation of the additional escalators (e.g., stair supports, wiring conduits, and motor foundations) at the mere cost of their purchase and installation now or to defer investment in these facilities until the escalators need to be installed. The two options are detailed as follows:
Option 1: Provide these facilities now for all six future escalators at $250,000.
Option 2: Defer the investment as needed. Installation of two more escalators is planned in three years, two more in seven years, and the last two in ten years. The installation of these facilities at the time they are required is estimated to cost $100,000 in year 3, $120,000 in year 7, and $140,000 in year 10.
For both options, additional annual expenses are estimated at $2,000 for each escalator facility installed. Assume the company's MARR is 15%,
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