Problem
Teléfono Mexico is expanding its facilities to serve a new manufacturing plant. The new plant will require 2000 telephone lines this year, and another 2000 lines after expansion in 10 years. The plant will operate for 30 years.
Option 1 Provide one cable now with capacity to serve 4000 lines. The cable will cost $200,000 and annual maintenance costs will be $15,000. Option 2 Provide a cable with capacity to serve 2000 lines now and a second cable to serve the other 2000 lines in 10 years. Each cable will cost $150,000 and will have an annual maintenance of $10,000. The telephone cables will last at least 30 years, and the cost of removing the cables is offset by their salvage value.
(a) Which alternative should be selected, assuming a 10% interest rate?
(b) Will your answer to (a) change if the demand for additional lines occurs in 5 years instead of 10 years?
The response should include a reference list. Double-space, using Times New Roman 12 pnt font, one-inch margins, and APA style of writing and citations.