Other investment costs service facilities

A second alternative requires construction and operation of new facilities at a location about 50 miles from the present plant. This alternative is attractive because cheaper labor is available at this location. The new facilities would cost 200,000. Labor costs would be 120,000 per year. Overhead costs would be 70,000 per year. Annual insurance and taxes would amount to 2 percent of the initial cost. All other costs except depreciation would be the same at each location. If the minimum return on any acceptable investment is 9 percent, determine the minimum service life allowable for the facilities at the distant location for this alternative to meet the required incremental return. The salvage value should be assumed to be zero, and straight-line depreciation accounting may be used. 

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