6. It is desired to determine the present economic value of an old machine by considering how it compares with the best modern machine that would replace it. The old machine is expected to require out-of-pocket costs of Php 85,000 each year for 4 years and then be scrapped for Php 5,000 residual value. The new machine requires an investment of Php 40,000 and would have out-of-pocket costs of Php 79,000 a year for 8 years and then zero salvage value. Invested capital should earn a minimum return of 15% before taxes. Determine the present value of the old machine.
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- Engr. Roque owner of the HarRoq’s Ice Plant is monitoring the cashflow of the plant. Based on the following information, how many ice blocks must produce and able to sell per month in order to break even? Ice block price Php 50.00/ice block Cost of electricity Php 30.00/ice block Tax to be paid Php 3.00/ice block Real estate Tax Php 4,500.00/month Salaries and wages Php 30,000.00/month Others Php 15,000.00/monthA 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 methodYou've estimated the following cash flows (in $ million) for two mutually exclusive projects: Year Project A Project B 0 -27 -43 1 30 45 2 40 50 What is the crossover rate, i.e., the discount rate at which both projects have the same NPV? What is project A's NPV at the crossover rate? What is project B's NPV at the crossover rate?
- "All growth models. You are evaluating the potential purchase of a small company that currently generates $42,500 in cash flow after taxes (D0 = $42,500). Based on a review of similar risk investment opportunities, you should earn a return rate of 18% from the proposed purchase. Since you're not very sure about future cash flows, you decide to calculate the value of the company assuming some possibilities for the cash flow growth rate. a) What is the value of the company if cash flows are expected to grow at an annual rate of 0% from now on? b) What is the value of the company if cash flows are expected to grow at a constant annual rate of 7% from now on? c) What is the value of the company if cash flows are expected to grow at an annual rate of 12% for the first 2 years and then, starting from year 3, the growth rate decreases to a constant annual rate of 7%?"Prominent Sdn Bhd produces furniture at several factories. Its Seberang Prai factoryproduces office chairs. Management aims to increase production in the coming year to 800units per month. Therefore, management is exploring two production strategies for thecoming year. The first strategy is to continue operations with the existing machine, MachineA, and the second strategy is to rent a new machine, Machine B, to produce the office chairs.The monthly rental of Machine B is RM14,000. Machine B takes half an hour to produce oneoffice chair. However, it requires a more skilled labour force with an hourly rate of RM30 perhour.Comparatively, continuing to use Machine A means that costs will remain the same. MachineA is 5 years old and is operating below capacity. The hourly labour rate is RM20 and thematerials required for each unit is RM30. Each office chair is assembled within an hour. Eachunit of the finished office chair is sold for RM120.The fixed monthly running costs of thefactory is…A certain warehouse is worth Php 1,650,000. The average value of the merchandise in the warehouse is Php 1,500,000. The annual insurance rate on the warehouse is 1% and the merchandise stored in the warehouse is 0.9%. A proposal for the installation of a fire sprinkler is being considered. The system will cost Php 80,000 and will effect a savings of 70% in both insurance premiums. Monthly maintenance is estimated to be Php 500 and annual taxes is Php 4,000 for the sprinkler system. The owners of the warehouse, demand that the investment in such equipment be written-off within 10 years. Invested capital can be expected to earn minimum return of about 17%. Would you advice the installation? (Use ROR)
- 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?Halloween, Inc., is considering a new product launch. The firm expects to have an annual operating cash flow of $9.6 million for the next 9 years. The discount rate for this project is 13 percent for new product launches. The initial investment is $39.6 million. Assume that the project has no salvage value at the end of its economic life. a. What is the NPV of the new product? (Do not round intermediate calculations and enter your answer in dollars, not millions of dollars, rounded to 2 decimal places, e.g., 1,234,567.89.) b. After the first year, the project can be dismantled and sold for $26.6 million. If the estimates of remaining cash flows are revised based on the first year’s experience, at what level of expected cash flows does it make sense to abandon the project? (Do not round intermediate calculations and enter your answer in dollars, not millions of dollars, rounded to 2 decimal places, e.g., 1,234,567.89.)Calculate the net present value (NPV) before tax of investment A: a factory. Base your calculation on the following information: The investment cost is paid in full in quarter 0, and the cost of the factory is 100000. The factory has a lifetime of 20 quarters (5 years) and the value of the factory at the end of quarter 20 is 0 Only Basic jetpacks should be manufactured at the factory throughout its lifetime. There is no investment in research to streamline production or material consumption. Suppose the quarterly demand in the market is constant and given at P = 228 - 0.007 * Q, where P is price and Q is the number of jetpacks in demand. There are 5 competitors in the market (including you), and all sell the same number of jetpacks each quarter at the price of 193 each. You produce as much as you sell. The costs associated with the quarterly production at the factory are given at K = 158 * Q + 20000, where 158 * Q is direct labor cost and materials, and 20000 is quarterly maintenance…
- The following pair of assets differ only in the MARR. The problem asks you to determine the effect of this difference on the economic life and to explain the result. All assets decline in value by 20 percent of current value each year. Installation costs are zero for all assets. Further data concerning the four pairs of assets are given in the table that follows. Asset First Cost Initial Operating Cost Rate of Operating Cost Increase MARR A $120,000 $30,000 12.5% 5% B $120,000 $30,000 12.5% 25% a. Determine the economic lives for assets A and B. The economic life of asset A is (enter your response here) years, and the economic life of asset B is (enter your response here) years. b. Create a diagram showing the EAC(capital), the EAC(operating), and the EAC(total) for assets A and B. c. Explain the difference in economic life between A and B.Horizon value question A project involved initial construction costs of $1.75 million. After 15 years, the useful life of that construction will be over and the facility will be demolished, involving sensitive environmental protections and cleanup. You estimate that 25% of the cost of the facility represents items that could be sold for scrap at 30% of their initial construction cost. You estimate the proper demolition cost of such a facility to be $0.9M. a. What is the NPV of the horizon value if the real discount rate is 0.035? b. If the expected annual rate of inflation is 0.02, what is the nominal horizon value in 15 years?You are the FPE at a petroleum plant and are overseeing the design and installation of a new fire pump. There are two separate options an electric pump and a diesel pump. The electric pump includes an initial investment of $5,000,000 with a yearly maintenance of $150,000. The diesel pump includes an initial investment of $3,500,000 with a yearly maintenance of $400,000. Assume both pumps have a life expectancy of 10 years and the interest rate is 6%. Which system is the most desirable? The electric pump because it costs approximately $340,000 less than the diesel pump. The electric pump because it costs approximately $520,000 less than the deisel pump. The diesel pump because it costs approximately $520,000 less than the electric pump. The diesel pump because it costs approximately $340,000 less than the electric pump.