A floor is being replaced. In total, this area is about 3,000 m^{2}. Two materials are available to use, either linoleum or wood flooring.
The initial investment in linoleum flooring is 350 $/m^{2}, while the wood flooring is 570 $/m^{2}.
Linoleum flooring: Lifetime: 24 years Cleaning: $200 /year per m^{2}
Wood flooring: Sanding and varnishing every other year: 110 $/m^{2}. The floor can only be sanded twice, after which it needs to be replaced. The lifetime of the floor is thus 6 years. Cleaning: 280 $/year per m^{2}
Based on cost/revenues, which option should be chosen? Be sure to state your reason why the choice should be made.
In the subsequent calculations, a discount rate of 4% per year should be used.
(I have created and attached the cash flow diagrams to help)
i = 4%
EUAC of lionleum = 1050000*(A/P,4%,24) + 600000
= 1050000 * 0.065587 + 600000 = 668866.35
EUAC of wood = 1710000*(A/P,4%,6) + 840000 + (1170000-840000)*(P/F,4%, 2)*(A/P,4%,6) + (1170000-840000)*(P/F,4%,4)*(A/P,4%,6)
= 1710000*(A/P,4%,6) + 840000 + 330000*(P/F,4%, 2)*(A/P,4%,6) + 330000*(P/F,4%,4)*(A/P,4%,6)
= 1710000*0.190762 + 840000 + 330000*0.924556*0.190762 + 330000*0.854804*0.190762
= 1278216.33
As EUAC of linoleum is less it should be selected
A floor is being replaced. In total, this area is about 3,000 m2. Two materials are available to ...