A highway bridge is being considered for replacement. The new bridge would cost $X and would last for 24 years. Annual maintenance costs for the new bridge are estimated to be $25,000. People will be charged pll of $0.29 per car to use the new bridge. Annual car traffic is estimated at 390,000 cars. The cost of collecting the toll consists of annual salaries for six collectors at $12,000 per collector. The existing bridge can b efurbished for $1,400,000 and would need to be replaced in 24 years. There would be additional refurbishing costs of $75,000 every five years and regular annual maintenance costs of $21,000 for the existing ridge. There would be no toll to use the refurbished bridge. If MARR is 15% per year, what is the maximum acceptable cost (X) of the new bridge? E Click the icon to view the interest and annuity table for discrete compounding when the MARR is 15% per year. Choose the correct answer below. OA. The maximum acceptable cost of the new bridge is $976,079. O B. The maximum acceptable cost of the new bridge is $2,166,975. OC. The maximum acceptable cost of the new bridge is $1,638,694. O D. The maximum acceptable cost of the new bridge is $1,496,573.

A highway bridge is being considered for replacement. The new bridge would cost $X and would last for 24 years. Annual maintenance costs for the new bridge are estimated to be $25,000. People will be charged pll of $0.29 per car to use the new bridge. Annual car traffic is estimated at 390,000 cars. The cost of collecting the toll consists of annual salaries for six collectors at $12,000 per collector. The existing bridge can b efurbished for $1,400,000 and would need to be replaced in 24 years. There would be additional refurbishing costs of $75,000 every five years and regular annual maintenance costs of $21,000 for the existing ridge. There would be no toll to use the refurbished bridge. If MARR is 15% per year, what is the maximum acceptable cost (X) of the new bridge? E Click the icon to view the interest and annuity table for discrete compounding when the MARR is 15% per year. Choose the correct answer below. OA. The maximum acceptable cost of the new bridge is $976,079. O B. The maximum acceptable cost of the new bridge is $2,166,975. OC. The maximum acceptable cost of the new bridge is $1,638,694. O D. The maximum acceptable cost of the new bridge is $1,496,573.

EBK CONTEMPORARY FINANCIAL MANAGEMENT

14th Edition

ISBN:9781337514835

Author:MOYER

Publisher:MOYER

Chapter10: Capital Budgeting: Decision Criteria And Real Option

Section: Chapter Questions

Problem 17P

See similar textbooks

Similar questions

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?
Friedman Company is considering installing a new IT system. The cost of the new system is estimated to be 2,250,000, but it would produce after-tax savings of 450,000 per year in labor costs. The estimated life of the new system is 10 years, with no salvage value expected. Intrigued by the possibility of saving 450,000 per year and having a more reliable information system, the president of Friedman has asked for an analysis of the projects economic viability. All capital projects are required to earn at least the firms cost of capital, which is 12 percent. Required: 1. Calculate the projects internal rate of return. Should the company acquire the new IT system? 2. Suppose that savings are less than claimed. Calculate the minimum annual cash savings that must be realized for the project to earn a rate equal to the firms cost of capital. Comment on the safety margin that exists, if any. 3. Suppose that the life of the IT system is overestimated by two years. Repeat Requirements 1 and 2 under this assumption. Comment on the usefulness of this information.
The Ham and Egg Restaurant is considering an investment in a new oven that has a cost of $60,000, with annual net cash flows of $9,950 for 8 years. The required rate of return is 6%. Compute the net present value of this investment to determine whether or not you would recommend that Ham and Egg invest in this oven.
Talbot Industries is considering launching a new product. The new manufacturing equipment will cost $17 million, and production and sales will require an initial $5 million investment in net operating working capital. The company’s tax rate is 25%. What is the initial investment outlay? The company spent and expensed $150,000 on research related to the new product last year. What is the initial investment outlay? Rather than build a new manufacturing facility, the company plans to install the equipment in a building it owns but is not now using. The building could be sold for $1.5 million after taxes and real estate commissions. What is the initial investment outlay?
A restaurant is considering the purchase of new tables and chairs for their dining room with an initial investment cost of $515,000, and the restaurant expects an annual net cash flow of $103,000 per year. What is the payback period?
Manzer Enterprises is considering two independent investments: A new automated materials handling system that costs 900,000 and will produce net cash inflows of 300,000 at the end of each year for the next four years. A computer-aided manufacturing system that costs 775,000 and will produce labor savings of 400,000 and 500,000 at the end of the first year and second year, respectively. Manzer has a cost of capital of 8 percent. Required: 1. Calculate the IRR for the first investment and determine if it is acceptable or not. 2. Calculate the IRR of the second investment and comment on its acceptability. Use 12 percent as the first guess. 3. What if the cash flows for the first investment are 250,000 instead of 300,000?
Gina Ripley, president of Dearing Company, is considering the purchase of a computer-aided manufacturing system. The annual net cash benefits and savings associated with the system are described as follows: The system will cost 9,000,000 and last 10 years. The companys cost of capital is 12 percent. Required: 1. Calculate the payback period for the system. Assume that the company has a policy of only accepting projects with a payback of five years or less. Would the system be acquired? 2. Calculate the NPV and IRR for the project. Should the system be purchasedeven if it does not meet the payback criterion? 3. The project manager reviewed the projected cash flows and pointed out that two items had been missed. First, the system would have a salvage value, net of any tax effects, of 1,000,000 at the end of 10 years. Second, the increased quality and delivery performance would allow the company to increase its market share by 20 percent. This would produce an additional annual net benefit of 300,000. Recalculate the payback period, NPV, and IRR given this new information. (For the IRR computation, initially ignore salvage value.) Does the decision change? Suppose that the salvage value is only half what is projected. Does this make a difference in the outcome? Does salvage value have any real bearing on the companys decision?
Talbot Industries is considering launching a new product. The new manufacturing equipment will cost 17 million, and production and sales will require an initial 5 million investment in net operating working capital. The companys tax rate is 40%. a. What is the initial investment outlay? b. The company spent and expensed 150,000 on research related to the new product last year. Would this change your answer? Explain. c. Rather than build a new manufacturing facility, the company plans to install the equipment in a building it owns but is not now using. The building could be sold for 1.5 million after taxes and real estate commissions. How would this affect your answer?