Someone wants to build 15 youth centers in NYC.

• Option 1Build all fifteen centers now, at a total construction cost of $300,000,000
• Option 2 Build five centers now for a total construction cost of $100,000,000, five more after four years at a total construction cost of $120,000,000, and five more eight years from now at a total construction cost of $150,000,000

In either case, each center requires $150,000 (adjusted for inflation) to run every year once it is built. You can assume the construction costs are paid in full at the beginning of the year the centers are built and that operating costs are due at the end of every year starting with year one.

 

If the average expected inflation is 2% and the interest rate is 10%, which option makes the most economic sense?

Answer rating: 100% (QA)

ith option one we are going to spend 300000000 For option 2 a... View the full answer