Reference no: EM131806794

Question: A new plant can be constructed from the ground up, or an existing building can be purchased and retrofitted to suit the new plant requirements. Constructing a new plant will require a parcel of land costing $100K and initial design and construction costs of $175K. The remaining construction costs will be payable at $800K at the ends of years 1 and 2. Construction costs in year 3 decrease to $150K. If an existing building is retrofitted, the initial cost will be $1.25M. The remodeling will also cost $175K at the end of years 1 through 3. Determine the future value at the end of year 3 for each alternative at an interest rate of 15%.