The County School Board has asked your help in comparing alternative methods o

The County School Board has asked your help in comparing alternative methods of providing a new school in a

newly developing suburban area. For the following two alternatives recommend the one that will be least costly to

the Board. Assume the interest rate is 7% and that the useful life of a school is 30 years. Draw a cash-flow

diagram to help you answer this question

Alternative 1: Build new school

Cost of new school and equipment: $2400000

O&M costs for first three years: $40000

O&M yearly cost increase with first increase occurring at EOY 3 $2500 per year

Salvage value at EOY 30 $280000

Alternative 2: Bus students to nearby school

Cost the first year $240000

Yearly increase in cost after EOY 1 $32000