.To resolve the issue of Coronavirus testing, a city decided to set up a plant to produce low cost testing kits. This facility will operate for 12 months and then it will be dismantled. It will cost the city $P to buy the main machine. In addition, the city will spend $45,000 as planning cost before the work commences. The monthly operating and maintenance cost to run the facility will be $52,500. The city also expects to lose additional $43,000 every month for the duration of the facility. It is estimated that, this plant will save taxpayers who will use the testing facility about $15 per usage. The city expects 0.5% of its 2 Million citizens to use the facility every month for 12 months. The facility will be upgraded at a cost of $40,000 at the end of month 5, $75,000 at the end of month 10, and will then be dismantled at the end of month 12 for S100,000. After dismantling, the city will sell the used machine at it salvage value of $72,000. Using benefit-cost ratio analysis with a Monthly interest rate of 5%, what is the maximum value of P that the city can spend to buy the main machine?

.To resolve the issue of Coronavirus testing, a city decided to set up a plant to produce low cost testing kits. This facility will operate for 12 months and then it will be dismantled. It will cost the city $P to buy the main machine. In addition, the city will spend $45,000 as planning cost before the work commences. The monthly operating and maintenance cost to run the facility will be $52,500. The city also expects to lose additional $43,000 every month for the duration of the facility. It is estimated that, this plant will save taxpayers who will use the testing facility about $15 per usage. The city expects 0.5% of its 2 Million citizens to use the facility every month for 12 months. The facility will be upgraded at a cost of $40,000 at the end of month 5, $75,000 at the end of month 10, and will then be dismantled at the end of month 12 for S100,000. After dismantling, the city will sell the used machine at it salvage value of $72,000. Using benefit-cost ratio analysis with a Monthly interest rate of 5%, what is the maximum value of P that the city can spend to buy the main machine?

Managerial Economics: A Problem Solving Approach

5th Edition

ISBN:9781337106665

Author:Luke M. Froeb, Brian T. McCann, Michael R. Ward, Mike Shor

Publisher:Luke M. Froeb, Brian T. McCann, Michael R. Ward, Mike Shor

Chapter5: Investment Decisions: Look Ahead And Reason Back

Section: Chapter Questions

Problem 4MC

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1. To resolve the issue of Coronavirus testing, a city decided to set up a plant to producelow cost testing kits. This facility will operate for 12 months and then it will bedismantled. It will cost the city $P to buy the main machine. In addition, the city willspend $45,000 as planning cost before the work commences. The monthly operating andmaintenance cost to run the facility will be $52,500. The city also expects to loseadditional $43,000 every month for the duration of the facility. It is estimated that, thisplant will save taxpayers who will use the testing facility about $15 per usage. The cityexpects 0.5% of its 2 Million citizens to use the facility every month for 12 months. Thefacility will be upgraded at a cost of $40,000 at the end of month 5, $75,000 at the end ofmonth 10, and will then be dismantled at the end of month 12 for $100,000. Afterdismantling, the city will sell the used machine at it salvage value of $72,000. Usingbenefit-cost ratio analysis with an interest…
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