(3) Due to earlier snowmelt associated with climate change, there is a need to replace the water storage formerly provided by snowpack with a new reservoir. The Bureau of Reclamation is therefore considering a multi-purpose reservoir on Temple Fork in Logan Canyon. The reservoir and dam will provide water supply and hydroelectricity. The following data were gathered to facilitate a cost-benefit analysis of the project. Initial Construction Costs: $35,000,000 Annual Value of Electricity Production: S600,000 Annual Value of Water Supply: $2,000,000 a) What is the project's benefit/cost ratio at a discount rate of 4%? (Assume a 50-year time horizon and annual compounding.) Does it pass the BCA test? b) Does the project pass the test at a discount rate of 10%?

(3) Due to earlier snowmelt associated with climate change, there is a need to replace the water storage formerly provided by snowpack with a new reservoir. The Bureau of Reclamation is therefore considering a multi-purpose reservoir on Temple Fork in Logan Canyon. The reservoir and dam will provide water supply and hydroelectricity. The following data were gathered to facilitate a cost-benefit analysis of the project. Initial Construction Costs: $35,000,000 Annual Value of Electricity Production: S600,000 Annual Value of Water Supply: $2,000,000 a) What is the project's benefit/cost ratio at a discount rate of 4%? (Assume a 50-year time horizon and annual compounding.) Does it pass the BCA test? b) Does the project pass the test at a discount rate of 10%?

Intermediate Financial Management (MindTap Course List)

13th Edition

ISBN:9781337395083

Author:Eugene F. Brigham, Phillip R. Daves

Publisher:Eugene F. Brigham, Phillip R. Daves

Chapter12: Capital Budgeting: Decision Criteria

Section: Chapter Questions

Problem 20P: The Aubey Coffee Company is evaluating the within-plant distribution system for its new roasting,...

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The Aubey Coffee Company is evaluating the within-plant distribution system for its new roasting, grinding, and packing plant. The two alternatives are (1) a conveyor system with a high initial cost but low annual operating costs and (2) several forklift trucks, which cost less but have considerably higher operating costs. The decision to construct the plant has already been made, and the choice here will have no effect on the overall revenues of the project. The cost of capital for the plant is 8%, and the projects’ expected net costs are listed in the following table: What is the IRR of each alternative? What is the present value of the costs of each alternative? Which method should be chosen?
The Government is considering a multi-purpose river valley project in which would involve construction of a dam, a reservoir, a power house, and several irrigation canals. The project would supply water for irrigation, generate electricity, and provide a measure of protection against floods. The following information has been gathered by the project control board. The project will require the following during the construction stage: i) locally produced power equipment costing Ks 200 million; ii) imported power equipment costing $ 10 million; iii) 20,000 tonnes of steel produced locally and made available to the project at Ks 6000 a tonne; iv) 350,000 tonnes of cement produced locally and made available to the project at Ks 800 a tonne; v) other construction materials (sand, bricks, ballast, etc.) costing Ks 100 million; vi) 25 million man-days of unskilled labour for which the project control board has decided to pay a daily wage rate of Ks 10; and vii) skilled labour costing Ks…
The Aubey Coffee Company is evaluating the within-plant distribution system for its new roasting, grinding, and packing plant. The two alternatives are (1) a conveyor system with a high initial cost but low annual operating costs and (2) several forklift trucks, which cost less but have considerably higher operating costs. The decision to construct the plant has already been made, and the choice here will have no effect on the overall revenues of the project. The cost of capital for the plant is 7%, and the projects' expected net costs are listed in the following table: Expected Net Cost Year Conveyor Forklift 0 -$500,000 -$200,000 1 -120,000 -160,000 2 -120,000 -160,000 3 -120,000 -160,000 4 -120,000 -160,000 5 -20,000 -160,000 What is the IRR of each alternative? The IRR of alternative 1 is -Select-undefined 5% 7% 9% Item 1 . The IRR of…
A pork processing facility is considering the installation of either a storage facility or a holding pond. A biosystems engineer has been hired to evaluate the economic trade-offs for the two alternatives. The engineer estimates the cost of the storage facility to be $213,000, with annual costs for maintenance to be $3,200 per year. She estimates the cost of the pond to be $90,000, plus $45,000 for pumps and piping, and annual operating and maintenance costs for the holding pond are estimated to be $8,500. The engineer estimates the life of the storage facility and the pond to be around 20 years but is concerned about the accuracy of this estimate. She decides to do a sensitivity analysis. Solve, a. Develop the equation that she would use to determine how sensitive the economic decision is to changes in life. Use a MARR of 15%. b. Determine which alternative is preferred for lives ranging from 15 to 25 years.
The National Water Commission in its ambition to drastically improve its water and wastewater services has employed the services of a local consultancy, Endeavour Water Ltd to reduce water wastage and recycle wastewater. The project titled; National Water Enhancement Project (NWEP) has a value of 100 billion dollars. As the project manager, you have proposed key project phases or control accounts: Strategy Development, Preliminary Planning, Detail Planning, Water Project Execution and Performance Analysis. The major work packages are the preliminary project report; project pay-back period; project performance report; project management plan; project procurement plan; strategy report; and new water /wastewater systems. Draw a work breakdown structure to organize the control accounts with their respective work packages.
The Army Corps of Engineers wants to construct a dam on a flood-prone river. The estimated construction cost and average annual dollar benefits are listed below. A 6% per year rate applies and dam life is infinite for analysis purposes. (a) Select the one best location using the B/C method. (b) If the sites are now considered independent projects, which sites are acceptable?
Two installations are being considered to provide for water storage in a chemical plant. A tank on a tower or a tank of equal capacity placed on a hill some distance from the plant. The cost of installing the tank and tower is estimated at P350,000. The cost of installing the tank on the hill, including the extra length of service lines, is estimated at P300,000. The hill installation will require an additional investment of P30,000 in pumping equipment whose life is estimated to be 15 years with a salvage value of P2,500. The life of the two installations is estimated to be 30 years. Annual cost of labor, electricity, and maintenance incident to the pumping equipment is estimated at P3,000. Taxes and insurance for both are 2.5% of the first cost. Money is worth 18% effective. Which alternative should be used? (USE PW)
The Department of Public Works is trying to decide between "patching" a road or repaving it completely. If the "patching" system is used, approximately 300 cubic meters of material will be required, at $25 per cubic meter (on site). Additionally, the berms will need to be re-constructed, which will cost $3000. The annual cost of routine maintenance of the "patched" road would be $4000. Repairs would only last 2 years, after which they would have to be re-made. The other alternative is for the department to repave the entire road, which would cost $65,000. This area would last 10 years if the road were maintained at a cost of $15000 per year, starting in 4 years. Regardless of which alternative is chosen, the road will be rebuilt within 10 years. If the interest rate is 13% per year, which alternative should the department select, based on present value?
slove using excel!!!Groundwater wells are known to begin pumping sand once it becomes exploited (old), and this may damage the subsequent water treatment processes. To solve this problem, two alternatives are proposed: A new well can be drilled at a capital cost of $385, 000 with minimal operating and maintenance expenses of $20,500 per year. A settling tank can be constructed ahead of the treatment processes which will cost $ 190,000 to build and $32, 100 per year to operate and maintain. The salvage value of either option at EOY 20 is 10% of the capital investment. Using a MARR of 7%: (a) Which alternative is better for the 20-year study period (using the present worth method)? ( b) Confirm the answer of (a) using the future worth method (state the future worth for each of the alternatives and make a decision based on these values)?
The Logan Well Services Group is considering two sites for storage and recovery of reclaimed water. The mountain site (MS) will use injection wells that cost $4.2 million to develop and $280,000 per year for M&O. This site will be able to accommodate 150 million gallons per year. The valley site (VS) will involve recharge basins that cost $11 million to construct and $400,000 per year to operate and maintain. At this site, 720 million gallons can be injected each year. If the value of the injected water is $3.00 per thousand gallons, which alternative, if either, should be selected according to the B/C ratio method? Use an interest rate of 8% per year and a 20-year study period. The B/C ratio is . Select alternative (Click to select) neither of the alternatives mountain site valley site .
Rust Industrial Systems Company is trying to decide between two different conveyor belt systems. System A costs $290,000, has a four - year life, and requires $93, 000 in pretax annual operating costs. System B costs $370,000, has a six - year life, and requires $87,000 in pretax annual operating costs. Both systems are to be depreciated straight - line to zero over their lives and will have zero salvage value. Whichever project is chosen, it will not be replaced when it wears out. The tax rate is 25 percent and the discount rate is 8 percent. Calculate the NPV for both conveyor belt systems. (A negative answer should be indicated by a minus sign. Do not round intermediate calculations and round your answers to 2 decimal places, e.g " 32.16.).
Two sites are currently under consideration for a bridge over a small river. The north site requires a suspension bridge. The south site has a much shorter span, allowing for a truss bridge, but it would require new road construction.The suspension bridge will cost $500 million with annual inspection andmaintenance costs of $350,000. In addition, the concrete deck would have to be resurfaced every 10 years at a cost of $1,000,000. The truss bridge and approach roads are expected to cost $250 million and have annual maintenance costs of $200,000. This bridge would have to be painted every 3 years at a cost of $400,000. In addition, the bridge would have to be sandblasted every 10 years at a cost of $1,900,000. The cost of purchasing right-of-way is expected to be $20 million for the suspension bridge and $150 million for the truss bridge. Compare the alternatives on the basis of their capitalized cost if the interest rate is 6% per year.