Reference no: EM131312479

The U.S. Army received two proposals for a turnkey design-build project for barracks for infantry unit soldiers in training. Proposal A involves an off-the-shelf “bare-bones” design and standard grade construction of walls, windows, doors, and other features. With this option, heating and cooling costs will be greater, maintenance costs will be higher, and replacement will be sooner than for proposal B. The initial cost for A will be $700,000. Heating and cooling costs will average $60,000 per year, with maintenance costs averaging $20,000 per year. Minor remodeling will be required in years 5, 10, and 15 at a cost of $100,000 each time in order to render the units usable for 20 years. They will have no salvage value. Proposal B will include tailored design and construction costs of $950,000 initially, with estimated heating and cooling costs of $80,000 per year and maintenance costs of $30,000 per year. There will be no salvage value at the end of the 20-year life. Which proposal should be accepted on the basis of an annual life-cycle cost analysis, if the interest rate is 6% per year?