Reference no: EM132984098

We can remodel our existing building at a cost of $6,900,000 or build a new building at a cost of $11,000,000. The old building, after it is refurbished, would not be as efficient as the new one, and energy costs would therefore be $750,000 a year higher. The maintenance cost for the old building would be $650,000 per year but only $380,000 for the new building. The salvage value for the new building would be $6,850,000 million after its 15-year life, while the salvage value for the old building would be $4,800,000 after its 9-year life. In addition, the new building would allow our company to project a "Green Friendly" image that would result in better recruitment of clients and personnel. It is estimated that this "Green Friendly" image would result in cost savings or increased cash flows (after tax) of $580,000 per year. If the new building is built, the old, the old building can be sold now for $950,000 in its present condition (please read pages 208-209 for the treatment of this cash flow). The required return for Boulder is 7.2 percent.

Problem 1: Determine Net present value for keeping the old building

Problem 2: Determine Net present value for building a new building