Question

Future Value and Present Value Tables The chief ranger of the state's Department of Natural Resources is considering a new plan for fighting forest fires in the state's forest ^ ^ ^ ." '^ m : :'" :=-u" u" ''" :'" lands. The current plan uses eight fire-control : '': _ _ = _ :-stations, which are scattered throughout the + a-ti".一咨ㄧ˙-a-, w_t"- -· interior of the state forest. Each station has a '" :'" '" ,'" เ" im ..一!!"--9'--au".-as-.-....- "" four-person compensation totals $210,000. Other costs staff, whose annual ' ㄧ- of operating each base amount to $110,000 per year. The equipment at each base has a T current salvage value of $130,000. The buildings at these interior stations have no other use. To demolish them would cost $11,000 each. = = cm The chief ranger is considering an alternative plan, which involves four fire-control stations · Iocated on the perimeter of the state forest Each station would require a six-person staff, with annual compensation costs of $310.000. Other operating costs would be $120,000 per base. Building each perimeter station would no. an "--"i' .. ::::: ㄧ uem taem cost $210,000. The perimeter bases would need helicopters and other equipment ; :: "" " "" = = = = ~ m w equipment from the interior stations could be used at the perimeter stations. Therefore, only half of the equipment at the interior stations would be sold if the perimeter '" m " ㅉ醮zu 쪄 w '" m The state uses a 10 percent hurdle rate for all capital projects. The chief ranger has decided to use a 15-year time period for the analysis Required 1. Use the incremental-cost approach to prepare a net-present-value analysis of the chief ranger's decision between the interior. ニニニニニニニニニニニニニニニ ' 'n' aan ism in, 140 aw .a. au.." ao. . .s uu san .3m a--sal. "I ,- Ha am 14, fire-control plan and the perimeter fire-control : t" ." or : .." i...-- 쁘 plan. (Round your "Discount factors" to 3 decimal places. Negative amounts should

Answer 1

Figures arrived are product of 8 stations and 4 stations respectively

Interior Fire Control Plan	(8 stations)				Perimeter Fire Control Plan (4 Stations)				Incremental Cost
Particulars	Amount	Prevent Value Factor	Net Present Value		Amount	Prevent Value Factor	Net Present Value		Amount
Operating cost	16,80,000	7.6061	127,78,248		12,40,000	7.6061	94,31,564		4,40,000
other cost	8,80,000	7.6061	66,93,368		4,80,000	7.6061	36,50,928		4,00,000
Perimeter					8,40,000	1	8,40,000		-8,40,000
Helicopter and Equipments					20,40,000	1	20,40,000		-20,40,000
Demolish value	88,000	0.239	21,032
Less : Half Equipment to be used					5,20,000	1	5,20,000		-5,20,000
Less :Salvage Value	10,40,000	0.239	2,48,560
Total			192,44,088				154,42,492		-25,60,000
Note: Since half of the equipments will be used in the Perimeter fire control station, hence half of the salvage value is deducted
perimeter fire station.

Since Incremental cost of Interior fire control station is high,hence perimter fire control station should be preferred.