A contractor has a contract to construct a 9,000-ft-long tunnel in 30 months. He is trying to decidewhether to do the job with his own forces or subcontract the job. He asks you to calculate theequivalent monthly cost of each alternative. His i = 1 percent per month. Production under bothalternatives will be 300 ft per month.Alternative ABuy a tunneling machine and work with contractor's own forces.cost of tunneling and machine. = $2,400,000 paid nowsalvage value of machine at EOM30 = $540,000cost of labor and materials= $ 250/ft for the first 10 months, increasing by0.5% /month at EOM each month thereafterAlternative BSubcontract the work. Cost $500 per foot of advance of the tunnel heading, for the full 9,000 ft.

Given: The contract for a 9000 ft tunnel is to be completed in 30 months. i = 1% per month…

Answered: A contractor has a contract to…

Practical Management Science

6th Edition

ISBN:9781337406659

Author:WINSTON, Wayne L.

Publisher:WINSTON, Wayne L.

Chapter9: Decision Making Under Uncertainty

Section: Chapter Questions

Problem 30P

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