A construction company is evaluating the purchase of a new concrete mixer with hydraulic hopper and automatic controller. The mixer will have a first cost of BD 10,000, life of 12 years, and no salvage value. It will require 3 operators at a cost of BD 4 per hour each. A total of one cubic meter of concrete can be poured each hour by the mixer. Altenatively, if human labor is used, 5 workers, each earning BD 5.500 per hour, are required to one cubic meter per hour. The estimated cost of the material is BD 28 per cubic meter and the MARR is 9% per year (clearly show the S.N., numeric answer, and final decision). a) Determine the minimum cubic meters per year to justify the purchase of the automatic mixer. b) The company expects to produce 120 cubic meters per year, which option should they select? Why?

A construction company is evaluating the purchase of a new concrete mixer with hydraulic hopper and automatic controller. The mixer will have a first cost of BD 10,000, life of 12 years, and no salvage value. It will require 3 operators at a cost of BD 4 per hour each. A total of one cubic meter of concrete can be poured each hour by the mixer. Altenatively, if human labor is used, 5 workers, each earning BD 5.500 per hour, are required to one cubic meter per hour. The estimated cost of the material is BD 28 per cubic meter and the MARR is 9% per year (clearly show the S.N., numeric answer, and final decision). a) Determine the minimum cubic meters per year to justify the purchase of the automatic mixer. b) The company expects to produce 120 cubic meters per year, which option should they select? Why?

EBK CONTEMPORARY FINANCIAL MANAGEMENT

14th Edition

ISBN:9781337514835

Author:MOYER

Publisher:MOYER

Chapter10: Capital Budgeting: Decision Criteria And Real Option

Section: Chapter Questions

Problem 9P

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