Question

A temporary office is needed to facilitate the construction of a new airport. The project will take 6 years. There are two options for the offices. Using a MARR of 12% what would you recommend the company do for offices?

Option A: Lease portable office trailers for $89,000 payable at start of each year. No additional costs.
Option B: Purchase a mobile office trailer for $240,000. It will cost $10,000 a year to operator the trailers and the tailer will last for 4 years. Salvage value of a trailer after years of use is shown in table below.

Answer 1

The correct answer is option B: Purchase a mobile office trailer for $240,000. It will cost $10,000 a year to operator the trailers and the tailer will last for 4 years.

Step-by-step explanation:

To evaluate which option the company should choose for temporary offices, we need to compare the costs of leasing portable office trailers (Option A) and purchasing a mobile office trailer (Option B).

Option A: The cost of leasing portable office trailers is $89,000 per year for 6 years, making the total cost $534,000.

Option B: The cost of purchasing a mobile office trailer is $240,000, and it will cost $10,000 per year to operate. The trailer will last for 4 years, so the total operating cost will be $40,000. After 4 years, the trailer can be sold for its salvage value, which is not provided in the question.

Since the total cost of Option A is lower than the cost of Option B, I would recommend the company to lease portable office trailers for temporary offices.