MINDANAO STATE UNIVERSITY

GENERAL SANTOS CITY

COLLEGE OF ENGINEERING
DEPARTMENT OF CIVIL ENGINEERING

SUBJECT: CE A92 – Engineering Economy for Civil Engineers

INSTRUCTOR: Engr. Steve Anthony N. Lim
REQ. TYPE: Case Study No. 2
DATE GIVEN: December 21, 2018
DUE DATE: January 4, 2019

INSTRUCTIONS: Analyze the scenario described below and provide solutions and answers for all problems as
specified. Site your sources properly.

SCENARIO: Using the same instance as with your previous case study, your team has made a more detailed
cash flow research for each location stated.

Location 1 – A lot located about 2 km form your office. This lot has no existing structures
in it. It was used in the past to park 10-wheeler delivery trucks. The owner is
in dire need of money and so he is willing to sell his lot for Php 5.5 million
pesos to be paid upfront. Clearing and grubbing inside the lot will amount to
Php 400,000 and an additional maintenance cost of Php 200,000 is needed
every 4 years. 4 caretakers are to be placed in-house which would have a salary
of Php 2,000 per month. Electricity and water services will amount to Php
5,000 per month.

Location 2 – A lot with an existing covered basketball court located 5 km from your office.
The owner said that you can rent this place for a contract term of 5 years with
a monthly fee of Php 100,000. After five years, this contract can be renewed
for an additional single payment of Php 50,000 the amount of rent would still
be the same (i.e. Php 100,000). 5 caretakers, provided by the owner, is to placed
in-house. Your share for the salary of this caretakers are Php 1,500 per month.
Maintenance of the lot is covered by the owner. Structural integrity of the
covered court is uncertain.

Location 3 – A lot with an existing 3-storey building adjacent to your compound. The owner
of this lot is giving you the rent-to-own option with a down payment of Php
150,000 and monthly amortizations of Php 25,000 for 15 years. Demolition of
the existing building will have an initial cost of Php 250,000 and an additional
of Php 10,000 per year for the next three years for complete demolition (e.g.
foundation excavation, pipeline removal, etc.) Caretakers no longer needed as
it is adjacent to your office. Electricity and water will amount to Php 7,000 per
month. Maintenance of the lot is minimal and need not be considered.

Location 4 – A vacant and unused farm land located 15 km from your office. The owner is
selling this lot for a down payment of Php 80,000 and monthly payments
amounting to Php 15,000 for 8 years. Land preparation will amount to Php 1.5
million initially and an additional fee of Php 20,000 per year forever for land
monitoring. 3 security guards are to be stationed at the lot with a salary of Php
7,000 per month. Electricity will amount to Php 2,000 per month (water is
readily available from government irrigations). Maintenance will amount to
Php 20,000 per year. Land preparations will render the lot unusable for 2 years.

PROBLEM: Use capitalized cost to determine the most economical option.

Given the new data gathered, what other non-economic factors should you consider?

NOTE: Research the appropriate interest rate to be used in you calculations