. At the end of their useful lives alternatives A and C will be replaced with identical replacements (the repeatability assumption) so that a 20-year service requirement (study period) is met. Which alternative should be chosen and w b. Now suppose that at their end of their useful lives, alternatives A and C will be replaces with replacement alternatives having an 8% internal rate of return. Which alternative should be chosen and why? Consider these mutually exclusive alternatives. MARR = 8% per year, so all the alternatives are acceptable. Capital investment (thousands) Uniform annual savings (thousands) Useful life (years) Computed IRR (over useful life) A $280 $45.57 10 10% Alternative B $425 $49.92 20 10% C $550 $145.09 5 10%

. At the end of their useful lives alternatives A and C will be replaced with identical replacements (the repeatability assumption) so that a 20-year service requirement (study period) is met. Which alternative should be chosen and w b. Now suppose that at their end of their useful lives, alternatives A and C will be replaces with replacement alternatives having an 8% internal rate of return. Which alternative should be chosen and why? Consider these mutually exclusive alternatives. MARR = 8% per year, so all the alternatives are acceptable. Capital investment (thousands) Uniform annual savings (thousands) Useful life (years) Computed IRR (over useful life) A $280 $45.57 10 10% Alternative B $425 $49.92 20 10% C $550 $145.09 5 10%

Managerial Economics: Applications, Strategies and Tactics (MindTap Course List)

14th Edition

ISBN:9781305506381

Author:James R. McGuigan, R. Charles Moyer, Frederick H.deB. Harris

Publisher:James R. McGuigan, R. Charles Moyer, Frederick H.deB. Harris

Chapter17: Long-term Investment Analysis

Section: Chapter Questions

Problem 2E

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Similar questions

n Project A Project B 0 -$7,000 -$5,000 1 -$2,500 -$2,000 2 -$2,000 -$2,000 3 -$1,500 -$2,000 4 -$1,500 -$2,000 5 -$1,500 -$2,000 6 -$1,500 -$2,000 7 - -$2,000 8 - - Suppose projects A and B are mutually exclusive. The required service period is 8 years and comparable equipment will be leased for $3,000 per year payable at the end of each year for the remaining years of the required service period. Which project is a better choice at 15%? Use PW(15%) criterion and show your equation with numbers plugged into factors and your numerical result for each option.
Your company is considering the introduction of a new product line. The initial investment required for this project is $500,000, and annual maintenance costs are anticipated to be $45,000. Annual operating costs will be directly proportional to the level of production at $8.50 per unit, and each unit of product can be sold for $65. If the MARR is 15% and the project has a life of 5 years, what is the minimum annual production level for which the project is economically viable? The equipment can be sold for $80,000 at the end of five years.
Ten years ago, Johnson Recovery purchased a wrecker for $330, 000 to move disabled 18-wheelers. He received a salvage value of $25, 000 after 10 years of use. During this 10-year period, his average annual revenue totaled $60, 000. a) Did he recover his investment at 12% per year return? In other words, does the Annual Equivalent Value of the benefits exceed the Capital Recovery cost at an interest rate of 12%? b) Suppose Johnson moves, on average, 250 disabled 18-wheelers each year. What is his average equivalent benefit/cost per vehicle moved? c) Now, incorporate annual operating and maintenance costs into your analysis. If the annual O&M cost was $5, 000 the first year and increased by a constant 10% per year, what is the annual equivalent worth at 12% per year?
A man is considering putting up his own enterprise, where an investment of 800,000Php will be required and will take 15 years to recoup . He estimates his annual sales at 800,000Php along with the following operating costs. Materials ............................. 160,000Php/ yearLabor ............................. 280,000Php/ yearOverhead ............................. (40,000 + 10% of sales) Php/ yearSelling Expense............................. 60,000Php/ yearThe man will give up his regular job paying 216,000 Php per year and devote all his time to the operation of his business, this will result in decreasing his labor cost by 40,000Php per year, material cost by 28,000Php per year and overhead cost by 32,000 Php per year. If the man expects to earn at least 20% of his capital, should he invest? solve in the present worth cost method
A water supply system is being considered for a small district. The system requires an initial investment of P8M, will operate for 15 years and will be sold for P0.4M after that time. Annual operations and maintenance costs is expected to be P48 000.00 for the first year and is expected to increase by P12 000.00 each year thereafter. Determine the annual cost of this project using i= 11%. (Ans. - P1,210,425.43)-PLEASE USE AN ACTUAL FORMULA NOT EXCEL
Calculate the discounted payback period to recover an investment of $285,000 inenhanced CNC controls that include axis control to 8 axes (on the milling model) ifthe associated income is $90,000 per year and expenses are $35,000 per yearstarting from year 1. Use a MARR of 10% per year.O. 5.18O. 6.96O. 7.67O. 8.13O. 4.25
A man is considering putting up his own enterprise, where an investment of 800,000 will be required and will take 15 years to recoup. He estimates his annual sales at 800,000 along with the following operating costs. Materials =160,000/ yearLabor = 280,000/ yearOverhead = (40,000 + 10% of sales)/ yearSelling Expense = 60,000/ yearThe man will give up his regular job paying 216,000 Php per year and devote all his time to the operation of his business, this will result in decreasing his labor cost by 40,000 per year, material cost by 28,000 per year and overhead cost by 32,000 per year. If the man expects to earn at least 20% of his capital, should he invest? Solve using a) Rate of return method b) annual worth method c)present worth method d)equivalent uniform annual cost method
A6 A special purpose machine is to be acquired by paying a P15,000 initial cash payment plus a debt assumption of P135,000. The machine will generate additional net annual cash inflow of P40,000 for the firm throughout the 10 years of useful life of the asset. At the end of its life, a salvage value of 10% of its initial cost will be realized. Assuming that the MARR is 13.2% per annum, is the project justified using the PW method?
A small manufacturing firm is considering the purchase of a new machine to modernize one of its current production lines. Two types of machines are available on the market. The lives of machine A and machine B are 4 years and 6 years, respectively, but the firm does not expect to need the service of either machine for more than 5 years. The machines have the following expected receipts and disbursements. Item Machine A (USD) Machine B(USD) First cost 325k 425k Service life 4 years 6 years Estimated Salvage Value 30k 50k Annual Opertaing & Maintenance Costs 40k 26k Oil Filter Change every other year 5k NONE Enginer Overhaul 10k every 3 years 14k every 4 years The firm always has another option: To lease a machine at 150k a year, fully maintained by the leasing company. After four years of use, the salvage value for machine B will remain at 50k. How many decision alternatives are there?…
The company uses a 10% discount rate and the total-cost approach to capital budgeting analysis. The working capital required under the new system would be released for use elsewhere at the conclusion of the project. Both alternatives are expected to have a useful life of ten years.1. The net present value of the overhaul alternative (rounded to the nearest hundred pesos) is: P(750,300) P(987,400) P(725,800) P(975,800) 2. The net present value of the new system alternative (rounded to the nearest hundred pesos) is: P(552,900) P(758,400) P(862,900) P(987,400)
Show that the same selection is made with: a. The PW Method b. The IRR method c. The ERR method d. Would leasing crane A for nine years, assuming the same costs per year as for three years, be preferred over your present selection? (ϵ = MARR = 15%)
Mask King is a producer of disposable face masks in Country Z. She is deciding whether to upgrade the quality of her face masks from Level I to Level III by using nano-technology she has been researching on since the last few years. When considering the upgrade of the product quality, the main relevant information are given as follows: i. Mask King paid $2 million for the research cost used in the relevant nanotechnology in the past few years; ii. A new production line has to be established, including the purchase of new tools and equipment, which estimated to be cost $5 million; iii. An increase in income of $6 million is expected from selling the upgraded Level III face masks. Using the concept of opportunity cost, explain whether Mask King should upgrade her face masks