A harvester was purchased 4 years ago for $100,000. The current market value is $45,000, which will decline as follows over the next 5 years: $40,000, $33,500, $28,000, $24,000, and $17,000. The O & M costs are estimated to be $16,000 this year. These costs are expected to increase by $5000 per year starting year 2. MARR = 10% The foregone interest in year 4 is _______________.

A harvester was purchased 4 years ago for $100,000. The current market value is $45,000, which will decline as follows over the next 5 years: $40,000, $33,500, $28,000, $24,000, and $17,000. The O & M costs are estimated to be $16,000 this year. These costs are expected to increase by $5000 per year starting year 2. MARR = 10% The foregone interest in year 4 is _______________.

Managerial Economics: Applications, Strategies and Tactics (MindTap Course List)

14th Edition

ISBN:9781305506381

Author:James R. McGuigan, R. Charles Moyer, Frederick H.deB. Harris

Publisher:James R. McGuigan, R. Charles Moyer, Frederick H.deB. Harris

Chapter17: Long-term Investment Analysis

Section: Chapter Questions

Problem 2E

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A machine that has been used for 8 years has a market value of $2,500 now, which decreases by $100 each year for the next 5 years. Maintenance costs this year are $5k, and for the next 5 years they are estimated at $6k, $7k, $8k and $9k. Determine the marginal cost of extending the service for two years if the MARR is 12%. Answer the questions: a) How much is the loss in market value in year 2? b) How much is the loss in interest in year 2? c) What is the Marginal Cost in year 2? d) If the machine's minimum EUAC is $5,500, when, in years, should the machine be replaced?
With the estimates shown below, Sarah needs to determine the trade-in (replacement) value of machine X that will render its AW equal to that of machine Y at an interest rate of 11% per year. Determine the replacement value. Machine X Machine Y Market Value, $ ? 92,000 Annual Cost, $ per Year −60,000 −40,000 for year 1,increasing by 2000 per year thereafter. Salvage Value 11,500 16,000 Life, Years 3 5 The replacement value is $ .
The Delta firm intends to buy a device called machine X. Machine X would cost $25,000 and have little salvage value after 10 years of use. The machine is anticipated to bring around $10,000 annually. Do the simple payback period calculation.
Allen Construction purchased a crane 6 years ago for $130,000. They need a crane of this capacity for the next 5 years. Normal operation costs $35,000 per year. The current crane will have no salvage value at the end of 5 more years. Allen can trade in the current crane for its market value of $40,000 toward the purchase of a new one, which costs $150,000. The new crane will cost only $8,000 per year under normal operating conditions and will have a salvage value of $55,000 after 5 years. If MARR is 20%, determine which option is preferred. a) Use cash flow approach (insider's viewpoint approach) b) Use the opportunity cost approach (outsider's viewpoint approach)
It is desired to determine the resent economic Value of an old machine by considering of how it compares with the best modern machine that could replace it. The old machine is expected to require out of pocket cost of 85,000 each year for 4 years and then be scared for 5,000 residual value. The new machine requires an investment of 40,000 and would have out of the pocket costs of 79,000 a year for 8 years and the zero-salvage value. Invested capital should earn a minimum return of 15% before taxes. Determine the present value of an old machine.
Economic Life Exercises1. A machine costs $ 10,000 and is expected to be scrapped for $ 1,500 inthe moment he retires. Operating expenses for the first year are expected to be $ 3,500 and increasing by $ 400 as a result of the impairment; and operating income Estimated $ 20,000 If the MARR is 15%, determine the economic life of the machine.
A recapping plant is planning to acquire a new Diesel generating set to replace its present unit which they run during brownouts. The new set would cost P135,000 with a five (5) year-life, and no estimated salvage value. Variable cost would be P150,000 a year. The present generating set has a book value of P75,000 and a remaining life of 5 years. Its disposal value now is P7,500, but it would be zero after 5 years. Variable operating cost would be P187,500 a year. Money is worth 10%. Which is profitable, to buy the new generator set or retain the present set? Support your answer by showing your computation and tables.
Anew forklift truck will require an investment of $30,000 and is expectedto have end-of-year market values and annual expenses as shown in the Table below.If MARR (before tax) is 10% per year, Önd the Economic Service Life of the truck.Market Value Annual ExpensesEnd of year at end of year during year1 $22,500 $3,0002 $16,875 $4,5003 $12,750 $7,0004 $9,750 $10,0005 $7,125 $13,000 please dont use excell
2. One year ago, a machine was purchased at a cost of $2,000, to be used for 6 years.However, the machine has failed to perform properly and has a cost of $500 per year forrepairs, adjustments, and shutdowns. A new machine is available to accomplish thefunctions desired and has an initial cost of $3,500. Its maintenance costs are expected tobe $50 per year during its service of 5 years. The approximate market value of the presentmachine has been roughly $1,200. If the operating cost (other than maintenance) for bothmachines are equal, show whether it is economical to purchase the new machine. Performa before-tax study, using an interest rate of 12% and assume that the salvage values will benegligible.
The coop bought an equipment for P 60,000 other expense including installations amounted to P 5,000. The equipment is expected to have a life of 14 yrs. with a salvage value of 10% of the original cost .Determine the book value at the end of 15 years . By ( a ) Straight line method and ( b ) Sinking fund method at 12% interest.
A present asset (defender) has a current market value of $85,000 (year 0 dollars). Estimated market values at the end of the next three years, expressed in year 0 dollars, are MV1= $73,000, MV2 = $60,000, MV3 = $40,000. The annual expenses (expressed in year 0 dollars) are $15,000 and are expected to increase at 4.5% per year. The before-tax nominal MARR is 15% per year. The best challenger has an economic life of five years and its associated EUAC is $39,100. Market values are expected to increase at the rate of inflation which is 3% per year. Based on this information and a before-tax analysis, what are the marginal costs of the defender each year and when should you plan to replace the defender with the challenger?
A certain equipment costs P7,000 has an economic life of n years and a salvage value P350 at the end of n years. If the book value at the end of 4 years is equal to P2197.22, compute for the economic life of the equipment using the sum of years digit method.