XYZ Construction, Inc. has asked you to help them select a new backhoe. You have a choice
between a Caterpillar one, which costs $55,000 and will save the company $6,000 annually, and
a John Deere one, which costs $68,000 and will save the company $7,500 annually. Both
machines can be sold at 30% of their original cost after 8-years of useful life. Given the interest
rate is 3%, using the NPV analysis to determine which of the backhoe should be purchased?
Florida International University Assignment #3
BCN3753- Financial Management of Construction Organization Fall 2019
Assignment #3 Page 2 of 3
Question 2 (5 points)
ABC Real Estate Inc. is considering the following three different locations to build a retail store:
Location A Location B Location C
Land cost $2,800,000 $4,100,000 $3,600,000
Construction cost $3,000,000 $3,900,000 $3,500,000
Annual rental revenue $550,000 $750,000 $650,000
If the company’s minimum attractive rate of return (MARR) is 6%, which location should be
selected using the rate-of-return analysis over a 20-year analysis period?
Florida International University Assignment #3
BCN3753- Financial Management of Construction Organization Fall 2019
Sample Solution