Posted: February 3rd, 2015
Define the type of construction recommended for each breakeven point.
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Case Study: Break-Even Analysis, Multiple Alternatives
An architectural engineering firm has been asked to prepare preliminary plans for the construction of a one-story commercial building. To arrive at some quantitative basis for recommending a type of construction, the engineering firm develops fixed and variable cost data. These data, given below, are assumed to represent the cost of construction and operation for a building enclosing between 2,000 and 6,000 gross square feet.
Steel:
First cost per square foot $72
Annual maintenance $14,000
Annual HVAC per square foot $3.00
Estimated life in years 20
Estimated sale value is 80% of first cost
Concrete block:
First cost per square foot $76
Annual maintenance $9,000
Annual HVAC per square foot $3.40
Estimated life in years 20
Estimated sale value is 100% of first cost
Frame and brick:
First cost per square foot $81
Annual maintenance $6,000
Annual HVAC per square foot $3.90
Estimated life in years 20
Estimated sale value is 110% of first cost
The MARR is 18%. Determine the breakeven points and draw the 3 straight line relationships of annual equivalent cost and area in square feet. Define the type of construction recommended for each breakeven point. ( this is done by area)
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