5. In connection with surfacing a new highway, a contractor has a choice of two sites on which to set up the mixing plant equipment. The contractor estimates that it will cost P51.75 per cubic meter per kilometer to haul the asphalt paving material from the mixing plant to the job site. If site B is selected, there will be an added charge of P600 per day for a flagman and it needs 2 flagman. The job requires 50,000 cubic meters of mixed asphalt paving material. It is estimated that four months (17 weeks of five working days per week) will be required for the job Cost Factors Site A Site B 4.3 km Average hauling distance 6 km Monthly rental of site P45,000 P225,000 Cost to setup and remove equipment P675,000 Hauling expense P51.75 / Cu.m/km P1,125,000 P51.75 / Cu.m/km

5. In connection with surfacing a new highway, a contractor has a choice of two sites on which to set up the mixing plant equipment. The contractor estimates that it will cost P51.75 per cubic meter per kilometer to haul the asphalt paving material from the mixing plant to the job site. If site B is selected, there will be an added charge of P600 per day for a flagman and it needs 2 flagman. The job requires 50,000 cubic meters of mixed asphalt paving material. It is estimated that four months (17 weeks of five working days per week) will be required for the job Cost Factors Site A Site B 4.3 km Average hauling distance 6 km Monthly rental of site P45,000 P225,000 Cost to setup and remove equipment P675,000 Hauling expense P51.75 / Cu.m/km P1,125,000 P51.75 / Cu.m/km

EBK CONTEMPORARY FINANCIAL MANAGEMENT

14th Edition

ISBN:9781337514835

Author:MOYER

Publisher:MOYER

Chapter9: Capital Budgeting And Cash Flow Analysis

Section: Chapter Questions

Problem 4P

See similar textbooks

Similar questions

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?
. In connection with surfacing a new highway, acontractor has a choice of two sites on which toset up the mixing plant equipment.The contractor estimates that it will cost P51.75per cubic meter per kilometer to haul the asphaltpaving material from the mixing plant to the jobsite.If site B is selected, there will be an addedcharge of P600 per day for a flagman and it needs 2 flagman.The job requires 50,000 cubic meters of mixedasphalt paving material. It is estimated that fourmonths (17 weeks of five working days perweek) will be required for the job.
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?
For a construction job, a contractor can haul rock by means of an ordinary 10 cubic yard dump truck, or he can use a combination rig where a 10 cubic yard truck also pulls an 8 cubic yard trailer. When this combination is used, the trailer slides into the empty dump truck body for the return trip. The total equivalent operating cost, including the driver, amortization of capital, interest on the investment, fuel, and maintenance is P625/hour for the dump truck and P875/hour for the tandem rig. For the required 10-mile haul, the loading and unloading, hauling, and return times are as follows; Time, minutes Conventional Double Rig Loading 3 5 Unloading 4 10 Hauling 24 28 Return 20 24 How much is the difference in cost per unit volume between the two alternatives?
A civil engineer involved in construction management must decide between two ways to pump concrete up to the top floors of a seven-story office building under construction. Plan 1 requires the purchase of equipment for $6000 which costs between $0.40 and $0.75 per metric ton to operate, with a most likely cost of $0.50 per metric ton. The asset is able to pump 100 metric tons per day. If purchased, the asset will last for 5 years, have no salvage value, and be used 50 days per year. Plan 2 is an equipment-leasing option and is expected to cost the company $2500 per year for equipment with a low cost estimate of $1800 and a high estimateof $3200 per year. In addition, an extra $5 per hour labor cost will be incurred for operating the leased equipment each 8-hour day. Use i = 12% per year. (a) Which plan should the engineer recommend on the basis of the most likely estimates of costs? (b) Will the decision above change if the pessimistic estimates are used?
Alfred Home Construction is considering the purchase of five dumpsters and the transport truck to store and transfer construction debris from building sites. The entire rig is estimated to have an initial cost of $142,500, a life of 8 years, a $8500 salvage value, an operating cost of $40 per day, and an annual maintenance cost of $8000. Alternatively, Alfred can obtain the same services from the city as needed at each construction site for an initial delivery cost of $125 per dumpster per site and a daily charge of $34 per day per dumpster. An estimated 19 construction sites will need debris storage throughout the average year. If the minimum attractive rate of return is 11% per year, how many days per year must the equipment be required to justify its purchase? The number of days per year the equipment must be required is determined to be
Raph Inc. needs someone to supply it with 1,000,000 planks of wood per year to support its manufacturing needs over the next six years, and your company has decided to bid on the contract. It will cost your firm $5,000,000 to install the equipment necessary to start production. The equipment will be depreciated using the straight-line method to 0 over the project's life. The salvage value of the equipment is expected to be 0. Your fixed costs will be $2,000,000 annually, and your variable production costs are $14 per plank. You also need an initial investment in net working capital of $2,000,000, which will be recovered at the end of the project. The firm has a tax rate of 21%, and the required rate of return is 10%. Calculate the bid price. (Round to 3 decimals) Calculate the OCF for year 1, based on the Bid price. (Round to 2 decimals)
Alfred Home Construction is considering the purchase of five dumpsters and the transport truck to store and transfer construction debris from building sites. The entire rig is estimated to have an initial cost of $125,000, a life of 8 years, a $5000 salvage value, an operating cost of $40 per day, and an annual maintenance cost of $2000. Alternatively, Alfred can obtain the same services from the city as needed at each construction site for an initial delivery cost of $125 per dumpster per site and a daily charge of $20 per day per dumpster. An estimated 45 construction sites will need debris storage throughout the average year. If the minimum attractive rate of return is 12% per year, how many days per year must the equipment be required to justify its purchase?
Raph Inc. needs someone to supply it with 500,000 planks of wood per year to support its manufacturing needs over the next four years, and your company has decided to bid on the contract. It will cost your firm $4,000,000 to install the equipment necessary to start production. The equipment will be depreciated using the straight-line method to 0 over the project's life. The salvage value of the equipment is expected to be 0. Your fixed costs will be $1,000,000 annually, and your variable production costs are $10 per plank. You also need an initial investment in net working capital of $1,500,000, which will be recovered at the end of the project. The firm has a tax rate of 21%, and the required rate of return is 10%. Calculate the bid price. (Round to 3 decimals)
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.).
Hagar Industrial Systems Company (HISC) is trying to decide between two different conveyor belt systems. System A costs $325,000, has a 4-year life, and requires $121,000 in pretax annual operating costs. System B costs $405,000, has a 6-year life, and requires $115,000 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 22 percent and the discount rate is 11 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.)
Rust Industrial Systems Company is trying to decide between two different conveyor belt systems. System A costs $295,000, has a four-year life, and requires $77,000 in pretax annual operating costs. System B costs $355,000, has a six-year life, and requires $83,000 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 21 percent, and the discount rate is 8 percent. Which project should the firm choose?