Moore identified three alternatives and eliminated the first one (the use of temporary structures) as undesirable.

The ALDEP score for Option 2 (123) is higher than the score for Option 3 (101), and therefore, it is a more effective block plan. However, if we make our decision strictly on the basis of layout effectiveness, Option 2 seems better, but beyond the fifth year, if growth continues as expected, it is not. Option 2 requires a major investment in a new facility. The initial investment cost is $100,000 for land, $760,000 for construction (19,000 sq ft $40/sq ft), and $20,000 for relocation costs. The total initial cost for Option 3 is only $15,000 for the corridor. However, the rental payments are $33,600 per year (or $2800/mo. 12 mo/yr). As a start, we could ask whether the increase in one-time investment dollars of $865,000 (or $880,000 $15,000) outweighs the present value of the rental payments for five years. Even when we ignore the time value of money, the rental payments are only $168,000. We must also consider the residual value of the building at the end of five years. 1. Depreciation: Because this project is only for 5 years, students might want to depreciate the project over the five-year life span. However, to be correct for income-tax purposes, the MACRS 31.5-year depreciation schedule should be used (see Exhibit TN.3 here and Table K.3 in CD Supplement B). For simplicity and planning purposes, Exhibit TN.4 uses 10-year straight-line depreciation. 2. The second assumption deals with the salvage value of the building in Option 2. Because this is a five-year project, we assume that the building and land will be disposed of after five years. Will Hightec dispose of it at book value, or will it realize a profit (or a loss) at the end of five years? This assumption can be a determining factor in making a choice. 3. The treatment of the monthly rent in Option 3 requires assumptions, too. For this solution, we assume the rent is payable at the beginning of each month; thus, we have calculated a beginning-of-year present value of $31,400 for the entire years rent. Because this amount is the present value of each years rent payments measured at the beginning of the year, we show it accordingly. The rent is not shown at the end of year 5 (beginning of year 6), as year 6 is outside the scope of this project. 4. For the Option 3 financial analysis, the connecting corridor between the two buildings would be abandoned at the end of the five years. Although its value has been depreciated (see assumption 2), abandonment will produce a loss (book value depreciation salvage value) that can be deducted from taxable income. Based on the financial analysis, the decision should be to use Option 3, renting the two buildings and building a corridor between them.

Possible Block Plans A. Option 2: Construct new building

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B.

Option 3: Rent additional space

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