5. Choose the correct answer. A European candy manufacturing plant manager must select a new irradiation system to ensure the safety of specific ingredients,while being economical. The two alternatives available have the following estimates:SystemFirst Cost, $CFBT, $ per YearLife, YearsAA System AB) System B-120,00060,000B-75,00020,0005The company is in the 35% tax bracket and assumes classical straight line depreciation for alternative comparisons performed at anafter-tax minimum acceptable rate of return (MARR) of 8% per year. A salvage value of zero is used when depreciation is calculated;however, system B can be sold after 5 years for an estimated 10% of its first cost. System A has no anticipated salvage value.Determine which is more economical using an annual worth (AW) analysis worked by hand.Which system should be selected?

The process through which an entity/individual analyze and evaluate a project/investment's…

Answered: A European candy manufacturing plant…

Essentials Of Investments

11th Edition

ISBN:9781260013924

Author:Bodie, Zvi, Kane, Alex, MARCUS, Alan J.

Publisher:Bodie, Zvi, Kane, Alex, MARCUS, Alan J.

Chapter1: Investments: Background And Issues

Section: Chapter Questions

Problem 1PS

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A metal plating company is considering four different methods for recovering by-product heavy metals from a manufacturing site’s liquid waste. The investment costs and annual net incomes associated with each method have been estimated. All methods have an 8-year life; the MARR is 11% per year; and an AW-based ROR analysis is required. (a) If the methods are independent (because they can be implemented at different plants), which ones are acceptable? (b) If the methods are mutually exclusive, determine which one should be selected. Method First Cost, $ Salvage Value, $ Annual Net Income, $/Year A −30,000 +1,000 +4,000 B −36,000 +2,000 +5,000 C −41,000 +500 +8,000 D −53,000 −2000 +10,500
At times firms will need to decide if they want to continue to use their current equipment or replace the equipment with newer equipment. The company will need to do replacement analysis to determine which option is the best financial decision for the company. Price Co. is considering replacing an existing piece of equipment. The project involves the following: • The new equipment will have a cost of $1,800,000, and it will be depreciated on a straight-line basis over a period of six years (years 1–6). • The old machine is also being depreciated on a straight-line basis. It has a book value of $200,000 (at year 0) and four more years of depreciation left ($50,000 per year). • The new equipment will have a salvage value of $0 at the end of the project's life (year 6). The old machine has a current salvage value (at year 0) of $300,000. • Replacing the old machine will require an investment in net operating working capital (NOWC) of $50,000 that will be recovered at the end…
In a chlorine-fluxing installation in a large aluminum company, engineers areconsidering the replacement of existing plastic pipe fittings with more expensive, but longer lived, copper fittings. The following table gives a comparison of the capital investments, lives, salvage values, and so on of the two mutually exclusive alternatives under consideration: Depreciation amounts are calculated with the SL method. Assume an income tax rate of 40% and a MARR after-taxes of 12% per year. Which pipe fitting would you select and why? Carefully list all assumptions that you make in performing the analysis.
Parker Hannifin of Cleveland, Ohio, manufactures CNG fuel dispensers. It needs replacement equipment to streamline one of its production lines for a new contract, but it plans to sell the equipment at or before its expected life is reached at an estimated market value for used equipment. Select between the two options using the corporate MARR of 15% per year and a future worth analysis for the expected use period. Option D E First Cost $-88,000 $-98,000 AOC, per Year $-11,000 $-24,000 Expected Market Value $5,500 $14,500 Expected Use 3 years 6 years The future worth of option D is $ . The future worth of option E is $ . Option (Click to select) D E is selected.
Copycat manufacturing company is subject to 30% income tax rate has the following operating data: Selling price per unit, P60; variable cost per unit, P22 and fixed cost of P504,000. Management plans to improve the quality of its product by replacing a component that costs P3.50, with a higher grade material that costs P5.50 and acquiring a P180,000 packing machine over a 10 year life with no estimated salvage value using the straight line method of depreciation. If the company wants to earn an after tax income of P201,600, how many units must it sell under the new proposal?
A piece of production equipment is to be replaced immediately because it no longer meets quality requirements for the end product. The two best alternatives are a used piece of equipment (E1) and a new automated model (E2). The economic estimates for each are shown in the accompanying table. The MARR is 15% per year. Solve, a. Which alternative is preferred, based on the repeatability assumption? b. Show, for the coterminated assumption with a five-year study period and an imputed market value for Alternative B, that the AW of B remains the same as it was in Part (a). [And obviously, the selection is the same as in Part (a).] Explain why that occurs in this problem.
A decision has to be taken by a firm whether or not to initiate manufacture of a new product called Sony. The following data has been established; A market research study carried out three month ago into the sales potential of Sony cost ¢25,000.00. A new machine would be required to be purchased at a cost of ¢100,000.00 solely to make Sony. A nil scrap value is anticipated and it is the firm’s policy to write off depreciation on a straight line basis over 5 years. Sony would be manufactured in a factory owned by the firm, the annual depreciation charged of which is ¢8,000.00. A present the factory is sublet at 17,500.00 per annum. The labour required at Sony are; NORMAL WAGE RATES PER HOUR DETAILS HOURS/UNIT OF SONY FIRST YEAR SUBSEQUENT YEAR Skilled 4 8.00 8.50 Semi-skilled 3 7.20 7.60 Unskilled 2 6.80 6.85 It is expected that there would be shortage of skilled labour in the first year only, so the manufacture of Sony, will make it…
Liv Enterprise is considering a national launch of 2 corn chip products under project A and B. The National launch will require the following:Additional manufacturing equipment; Project A: K900, 000.00 and Project B: K1, 000,000.00 Upgrading Existing Facilities; Project A: K100, 000.00 and Project B: K400,000.00 Both of the above would be paid for at the outset and would be depreciated in the accounts over a five year period using straight line with a residual value of for both for Project A and B of zero.Projected revenues and costs over a period of five years are given in table below:Project AYear Revenue Costs1 K1,200,000.00 K1,340,000.002 K2,000,000.00 K1,670,000.003 K2,000,000.00 K1,520,000.004 K2,250,000.00 K1,685,000.005 K2,250,000.00 K1,685,000.00 Project B Year Revenue Costs1 K1,300,000.00 K1,460,000.002 K2,100,000.00 K1,520,000.003 K2,200,000.00 K1,400,000.004…
At times firms will need to decide if they want to continue to use their current equipment or replace the equipment with newer equipment. The company will need to do replacement analysis to determine which option is the best financial decision for the company. Price Co. is considering replacing an existing piece of equipment. The project involves the following: • The new equipment will have a cost of $600,000, and it is eligible for 100% bonus depreciation so it will be fully depreciated at t = 0. • The old machine was purchased before the new tax law, so it is being depreciated on a straight-line basis. It has a book value of $200,000 (at year 0) and four more years of depreciation left ($50,000 per year). • The new equipment will have a salvage value of $0 at the end of the project's life (year 6). The old machine has a current salvage value (at year 0) of $300,000. • Replacing the old machine will require an investment in net operating working capital (NOWC) of $50,000…
Monroe Manufacturing owns a warehouse that has been used for storing finished goods for electro-pump products. As the company is phasing out the electro-pump product line, the company is considering modifying the existing structure to use for manufacturing a new product line. Monroe's production engineer feels that the warehouse could be modified to handle one of two new product lines. The cost and revenue data for the two product alternatives arc as follows: Product A Product BInitial cash expenditure:• Warehouse modification $115,000 $189,000• Equipment $250,000 $315,000Annual revenues $215,000 $289,000Annual O&M costs $126,000 $168,000Product life 8 years 8 yearsSalvage value…
Hybachi Company is trying to decide whether it should purchase new equipment and continue to make its subassemblies internally or if production should be discontinued and the subassembly purchased from an outside supplier. Either way production cannot continue using the current equipment. New equipment for producing the subassemblies can be purchased at a cost of $400,000. The equipment would have a five-year useful life (the company uses straight-line depreciation) and a $50,000 salvage value. Alternatively, the subassemblies could be purchased from an outside supplier. The supplier has offered to provide the subassemblies for $9 each under a five-year contract. Hybachi Company's present costs per unit of producing the subassemblies internally (with the old equipment) are given below. The costs are based on a current activity level of 40,000 subassemblies per year: Direct Materials $ 3.00…
Esquire Company needs to acquire a molding machine to be used in its manufacturing process. Two types of machines that would be appropriate are presently on the market. The company has determined the following: (FV of $1, PV of $1, FVA of $1, PVA of $1, FVAD of $1 and PVAD of $1) (Use appropriate factor(s) from the tables provided.) Machine A could be purchased for $69,000. It will last 10 years with annual maintenance costs of $2,200 per year. After 10 years the machine can be sold for $7,245. Machine B could be purchased for $57,500. It also will last 10 years and will require maintenance costs of $8,800 in year three, $11,000 in year six, and $13,200 in year eight. After 10 years, the machine will have no salvage value. Required:Assume an interest rate of 8% properly reflects the time value of money in this situation and that maintenance costs are paid at the end of each year. Ignore income tax considerations. Calculate the present value of Machine A & Machine B. Which machine…

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