A living roof is a roof of a building that is completely covered with grass or other vegetation planted over a waterproof layer (to protect the building interior). The Ford Motor Company's Rouge Plant in Dearborn, Michigan, is an example of a successful implementation of a living roof.
There are several benefits associated with a living roof including the following:
1. Reduce heating and cooling costs for the building.
2. Reduce storm water runoff.
3. Filter pollution out of air and water.
4. Help to insulate building for sound.
5. Create a habitat for various wildlife.
6. Increase life of roof (as compared to a typical traditional roof).
Royalton Consultants, Inc., is investigating whether it should replace its current roof with a long-lasting composite roof or a living roof. A long-lasting composite roof would cost the company $1,200,000 and would last approximately 30 years. The annual maintenance costs on this composite roof would be approximately $16,000 per year. At the end of its useful life of 30 years, various components of the composite roof could be recycled and sold for $60,000.
The other roofing alternative is a living roof. The costs associated with constructing the living roof total $1,385,000 and include the following: Vegetation $300,000, waterproof membrane $125,000, growing medium (dirt) $200,000, living roof expert consultant fee $25,000, construction costs $700,000, and other miscellaneous fees $35,000. Maintenance on the living roof is estimated to be $54,000 per year. Management estimates that this living roof will last for 30 years. The following savings should result from the living roof:
• Heating and cooling costs will be reduced by $50,000 per year
• Storm water treatment costs will be reduced by $4,000 per year
• Filtering system costs will be reduced by $2,000 per year
The living roof would have no recyclable components to be sold at the end of its life.
The company uses a 10% discount rate in evaluating capital investments.
Requirements
1. Calculate the present value of the composite roof.
2. Calculate the present value of the living roof.
3. From a purely quantitative standpoint, which roof would you recommend?
4. Are there qualitative factors to consider in this decision? What other factors besides financial should be considered in this situation?