Assume that Walmart Inc. has decided to surface and maintain for 10 years a vacant lot next to one of its stores to serve as a parkinglot for customers. Management is considering the following bids involving two different qualities of surfacing for a parking area of12,000 square yards.Bid A: A surface that costs $5.75 per square yard to install. This surface will have to be replaced at the end of 5 years. The annualmaintenance cost on this surface is estimated at 25 cents per square yard for each year except the last year of its service. Thereplacement surface will be similar to the initial surface.Bid B: A surface that costs $10.50 per square yard to install. This surface has a probable useful life of 10 years and will require annualmaintenance in each year except the last year, at an estimated cost of 9 cents per square yard.Click here to view factor tables.Compute present value of the bids. You may assume that the cost of capital is 9%, that the annual maintenance expenditures areincurred at the end of each year, and that prices are not expected to change during the next 10 years. (Round factor values to 5 decimalplaces, e.g. 1.25124 and final answer to O decimal places, e.g. 458,581.)Present value of outflows for Bid APresent value of outflows for Bid B$Walmart should accept$Which bid should be accepted by Walmart.

Given::Area= 12000 sq. yardWorking Notes (WN):WN # 1Bid AInstallation cost =…

Answered: Assume that Walmart Inc. has decided to…

EBK CONTEMPORARY FINANCIAL MANAGEMENT

14th Edition

ISBN:9781337514835

Author:MOYER

Publisher:MOYER

Chapter9: Capital Budgeting And Cash Flow Analysis

Section: Chapter Questions

Problem 10P

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Assume that Walmart Inc. has decided to surface and maintain for 10 years a vacant lot next to one of its stores to serve as a parking lot for customers. Management is considering the following bids involving two different qualities of surfacing for a parking area of 11,600 square yards. Bid A: A surface that costs $6.25 per square yard to install. This surface will have to be replaced at the end of years. The annual maintenance cost on this surface is estimated at 25 cents per square yard for each year except the last year of its service. The replacement surface will be similar to the initial surface. Bid B: A surface that costs $10.25 per square yard to install. This surface has a probable useful life of 10 years and will require annual maintenance in each year except the last year, at an estimated cost of 11 cents per square yard. Click here to view factor tables. Compute present value of the bids. You may assume that the cost of capital is 11%, that the annual maintenance…
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Aerotron Electronics is considering purchasing a water filtration system to assist in circuit board manufacturing. The system costs $40,000. It has an expected life of 7 years at which time its salvage value will be $7,500. Operating and maintenance expenses are estimated to be $2,000 per year. If the filtration system is not purchased, Aerotron Electronics will have to pay Bay City $12,000 per year for water purification. If the system is purchased, no water purification from Bay City will be needed. Aerotron Electronics must borrow half of the purchase price, but they cannot start repaying the loan for 2 years. The bank has agreed to three equal annual payments, with the first payment due at the end of year 2. The loan interest rate is 8% compounded annually. Aerotron Electronics’ MARR is 10% compounded annually. a. What is the present worth of this investment? b. What is the decision rule for judging the attractiveness of investmentsbased on present worth? c. Should Aerotron…

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