American Electric Power agreed to spend $4.6 billion to clean up 46 coal-fired power plants that are believed to be contributing to acid rain. The plan is to reduce nitrogen oxide emissions by 69% by 2016 and sulfur dioxide emissions by 79% by 2018. Assume Plan A is to spend $0.575 billion per year in years 1 through 4 and an additional $0.575 billion per year in years 7 through 10. Plan B is to spend $0.46 billion in each of years 1 through 10. At an interest rate of 8% per year, which plan is more economical to the company based on a present worth analysis?
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American Electric Power agreed to spend $4.6 billion to clean up 46 coal-fired power plants that are believed to be contributing to acid rain. The plan is to reduce nitrogen oxide emissions by 69% by 2016 and sulfur dioxide emissions by 79% by 2018. Assume Plan A is to spend $0.575 billion per year in years 1 through 4 and an additional $0.575 billion per year in years 7 through 10. Plan B is to spend $0.46 billion in each of years 1 through 10. At an interest rate of 8% per year, which plan is more economical to the company based on a present worth analysis?
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- The pumping cost for delivering water from the Ohio River to Wheeling Steel for cooling hot rolled steel was $1.8 million for the first 4 years. An effective energy conservation program resulted in a reduced cost of $1.77 million in year 5, and $1.74 million in year 6, and amounts decreasing by $30,000 each year through year 10. What is the present worth of the pumping costs in year 0 at an interest rate of 8% per year? The present worth of the pumping costs is determined to be $The Waterloo Region Municipality plans to spend $272,500,000 for the installation of a light rail train service. Annual Maintenance and Operating costs are estimated at $3,025,000 per year. The installation of the light rail train service will reduce laneways for cars, reduce the number of parking spots, and disrupt local businesses during the construction phase. As a result, the dis-benefits of the light rail train service is estimated to be $1, 397, 500 per year. The lifetime of the rail service is indefinite and the cost of borrowing money for the Waterloo Region Municipality is 3.00% per year. What is the minimum annual benefit that the light rail train service must achieve in order to be a project worth pursuing?HiTech Inc. is investing in a new production line to manufacture their newest high volume consumer product. Design costs for the past three years, leading up to production, have been $0.75 million per year. Today production machinery totaling $3.65 million is being purchased to equip the new line. Operating and maintenance expenses will total $50,000 per year, and materials and overhead costs will be $1.75 million annually. The new line will operate for 7 years, at which time equipment will be sold at 10% of purchase price. Revenue from the new product is expected to be $2.0 million the first year, increasing by $0.50 million per year for the next 4 years, then decreasing by $0.75 million in years 6 and 7. HiTech has asked you to create a cash flow table and diagram.
- A large electric utility company releases 62 million tons of greenhouse gases (mostly carbondioxide) into the environment each year. This company has committed to spending $1.2 billionin capital over the next five years to reduce its annual emissions by 5%. More will be spent afterfive years to reduce greenhouse gases further.a. What is the implicit cost of a ton of greenhouse gas?b. If the United States produces 3 billion tons of greenhouse gases per year, how muchcapital must be spent to reduce total emissions by 3% over the next five years based onyour answer in Part (a)As part of its overall plant modernization and cost reduction program, the management of Tanner-Woods Textile Mills has decided to install a new automated weaving loom. In the capital budgeting analysis of this equipment, the IRR of the project was 20% versus a project required return of 12%. The loom has an invoice price of $250,000, including delivery and installation charges. The funds needed could be borrowed from the bank through a 4-year amortized loan at a 10% interest rate, with payments to be made at year-end. In the event the loom is purchased, the manufacturer will contract to maintain and service it for a fee of $20,000 per year paid at year-end. The loom falls in the MACRS 5-year class, and Tanner-Woods's marginal federal-plus-state tax rate is 40%. The applicable MACRS rates are 20%, 32%, 19%, 12%, 11%, and 6%. United Automation Inc., maker of the loom, has offered to lease the loom to Tanner-Woods for $70,000 upon delivery and installation (at t = 0) plus 4…A consumer product company is considering introducing a new shaving system called DELTA-4 in the market. The company plans to manufacture 75 million units of DELTA-4 a year. The investment at time 0 that is required for building the manufacturing plant is estimated as $500 million, and the economic life of the project is assumed to be 10 years. The annual total operating expenses, including manufacturing costs and overhead, are estimated at $175 million. The salvage value that can be realized from the project is estimated at $120 million. If the company's MARR is 25%, determine the price that the company should charge for a DELTA-4 shaving system to break even.(a) $3.15(b) $4.15(c) $5.15(d)$2.80
- A manufacturer wants to introduce new factory equipment that requires machinery to be purchased today for $120 million. This new machine will last for five years, and will be depreciated straight-line to a value of zero at the end of year five. The extra savings from the new machine are expected to produce project inflows of $47 million per year, beginning one year from today, for five consecutive years. The machine does carry extra costs such that project outflows will be $9 million per year, beginning one year from today, for five consecutive years. If the firm’s tax rate is 30% and the required rate of return is 13%, which of the following comes closest to the NPV of the new equipment project? Select one: a. $1.84 million b. $8.13 million c. ($1.12) million d. ($3.96) million e. $4.92 millionJasper Metals is considering installing a new molding machine which is expected to produce operating cash flows of $57,000 per year for 7 years. At the beginning of the project, inventory will decrease by $17,600, accounts receivables will increase by $21,800, and accounts payable will increase by $15,600. At the end of the project, net working capital will return to the level it was prior to undertaking the new project. The initial cost of the molding machine is $255,000. The equipment will be depreciated straight-line to a zero book value over the life of the project. The equipment will be salvaged at the end of the project creating an aftertax cash flow of $52,000. What is the net present value of this project given a required return of 10.2 percent? Multiple Choice $52,418 $63,408 $52,653 $50,364 $60,349BASF will invest $14 million this year to upgrade its ethylene glycol processes. This chemical is used to produce polyester resins to manufacture products varying from construction materials to aircraft, and from luggage to home appliances. Equity capital costs 14.5% per year and will supply 65% of the capital funds. Debt capital costs 10% per year before taxes. The effective tax rate for BASF is 36%. (a) Determine the amount of annual revenue after taxes that is consumed in covering the interest on the project’s initial cost. (b) If the corporation does not want to use 65% of its own funds, the financing plan may include 75% debt capital. Determine the amount of annual revenue needed to cover the interest with this plan, and explain the effect it may have on the corporation’s ability to borrow in the future.