A heat exchanger is needed in a chemical process. If interest is 9% compoundedannually, determine which of the following heat exchangers is cheaper by comparingthe capitalized costs:Exchanger A costs P22,000 with a scrap value of P1,000 and a useful life of 7years;Exchanger B costs P28,000 with a scrap value of P1,500 and a useful life of 10years.Capitalized cost of Exchanger A: PhpCapitalized cost of Exchanger B: PhpNote: Input numerical values only, do not type the units, space or comma.

Capitalized cost is the net present cost of the equipment i.e. initial cost, present value of annual…

Answered: A heat exchanger is needed in a…

EBK CONTEMPORARY FINANCIAL MANAGEMENT

14th Edition

ISBN:9781337514835

Author:MOYER

Publisher:MOYER

Chapter9: Capital Budgeting And Cash Flow Analysis

Section: Chapter Questions

Problem 8P

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Falkland, Inc., is considering the purchase of a patent that has a cost of $50,000 and an estimated revenue producing life of 4 years. Falkland has a cost of capital of 8%. The patent is expected to generate the following amounts of annual income and cash flows: A. What is the NPV of the investment? B. What happens if the required rate of return increases?
Dauten is offered a replacement machine which has a cost of 8,000, an estimated useful life of 6 years, and an estimated salvage value of 800. The replacement machine is eligible for 100% bonus depreciation at the time of purchase- The replacement machine would permit an output expansion, so sales would rise by 1,000 per year; even so, the new machines much greater efficiency would cause operating expenses to decline by 1,500 per year The new machine would require that inventories be increased by 2,000, but accounts payable would simultaneously increase by 500. Dautens marginal federal-plus-state tax rate is 25%, and its WACC is 11%. Should it replace the old machine?
Mason, Inc., is considering the purchase of a patent that has a cost of $85000 and an estimated revenue producing lite of 4 years. Mason has a required rate of return that is 12% and a cost of capital of 11%. The patent is expected to generate the following amounts of annual income and cash flows: A. What is the NPV of the investment? B. What happens if the required rate of return increases?
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Company A is considering two alternatives. Machine A has a first cost of $15,000. The life is 6 years and it has an annual maintenance and operating cost of $1,500. Machine B has a first cost of $18,000, a life of 8 years and a salvage value of $1,500. The annual operating cost is $1,000. Which machine should be used to justify the purchase of such machine if money is worth 7% and calculate the difference between the equivalent annual worths.
A new heat exchanger must be installed by CSI, Inc. Alternative A has an initial cost of $33,400, and Alternative B has an initial cost of $47,500. Both alternatives are expected to last 10 for years. The annual cost of operating the heat exchanger depends on ambient temperature in the plant and on energy costs. The estimate of the cost and probabilities for each alternative is given. If CSI has a MARR of 8% and uses rate of return analysis for all capital decisions, which exchanger should be purchased?
A company is considering buying a piece of machinery that costs $20,000 and has a salvage value of $6,000 at the end of its 5-year useful life. The machinery nets $5,000 per year in annual revenues. The internal rate of return (IRR) on this investment is between__________. if the company considering purchasing the machine uses a MARR of 12%, would you recommend that it be bought?
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A new alloy can be produced by Process A, which costs $200,000 to implement. The operating cost will be $10,000 per quarter with a salvage value of $25,000 after its 2-year life. Process B will have a first cost of $250,000, an operating cost of $15,000 per quarter, and a $40,000 salvage value after its 4-year life. The interest rate is 8% per year compounded quarterly. What is the present value difference between A and B?
Suppose you are considering an investment project that requires $800.000, has a six-year life, and has a salvage value of $100,000. Sales volume is projected 10 be 65,000 units per year. Price per un it is $63, variable cos! per unit is $42, and fixed costs are $532,000 per year. The depreciation method is a five-year MACRS. 1l1e tax rate is 35% and you ex pect a 20% relurn on this investment. a-Determine the break-even sales volume. b-Calculate the cash flows of the base case over six years and its NPW. c-lf the sales price per unit increases to $400, what is the required break-even volume? d-Suppose the projections given for price, sales volume, variable costs, and fixed costs are all accurate to within ± 15%. What would be the NPW figures of the best-case and worst-case scenarios?
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A firm is considering three mutually exclusive alternatives as part of a production improvement program. The alternatives are as follows: A B C Installed cost $8,000 $12,000 $16,000 Uniform annual benefit 1,600 1,750 2,050 Useful life, in years 10 20 20 For each alternative, the salvage value at the end of useful life is zero. At the end of 10 years, Alt. A could be replaced by another A with identical cost and benefits. (a)Construct a choice table for interest rates from 0% to 100%. (b)The MARR is 12%. If the analysis period is 20 years, which alternative should be selected?

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