A living roof is a roof of a building that is completely covered with grass or other

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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 stormwater 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).
Valley View 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 $1,500,000 and would last approximately 25 years. The annual maintenance costs on this composite roof would be approximately $21,000 per year. At the end of its useful life of 25 years, various components of the composite roof could be recycled and sold for $45,000.
The other roofing alternative is a living roof. The costs associated with constructing the living roof total $1,750,000 and include the following: vegetation $300,000, waterproof membrane $145,000, growing medium (dirt) $230,000, living roof expert consultant fee $35,000, construction costs $720,000, and other miscellaneous fees $320,000. Maintenance on the living roof is estimated to be $61,000 per year.
Management estimates that this living roof will last for 25 years. The following savings should result from the living roof:
• Heating and cooling costs will be reduced by $35,000 per year.
• Stormwater treatment costs will be reduced by $8,000 per year.
• Filtering system costs will be reduced by $19,000 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?
Discount Rate
Depending upon the context, the discount rate has two different definitions and usages. First, the discount rate refers to the interest rate charged to the commercial banks and other financial institutions for the loans they take from the Federal...
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Managerial Accounting

ISBN: 978-0134128528

5th edition

Authors: Karen W. Braun, Wendy M. Tietz

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