Question

Woolman College is expanding their on-campus student center. Their current facility is 20,000 square feet and costs $1,500 / month in utilities and $ 400 / month in insurance. Five years ago, they remodeled the current facility for $30,000. The proposed expansion will increase the size of the facility to 40,000 square feet, will include a full-functioning restaurant and will require the remodeled sections to be torn down and renovated. Management estimates they will need to purchase an additional $25,000 in kitchen equipment. Also, utilities will increase to $ 3,000 / month and insurance will increase to $ 1,000 / month. To expand the facilities, Woolman will need to use $ 500,000 that is currently in their investment account, returning 10% annually. The differential cost of utilities from choosing to expand the facilities is:

Answer 1

Answer:

$1500 per month

Explanation:

The scenario contains a lot of differential costs between the current and expansion scenarios however the question only talks about one cost - utility per month.

The differential cost of utilities from choosing to expand the facilities is:

The difference between what utility is in the current facility which is 1,500 / month, and the fact that Management estimates they will need to increase utility to $ 3,000 / month

Therefore the difference is $1500 per month