estimated at 15 years and salvage value is 5%. At present, abandoning the old plant in favor of diesel plant is being considered. A market has been found for the old engine and boiler equipme P15,000. The remainder of the old plant can be utilized in the new and is given a valuation of Pt Depreciation has been figured on straight line basis. What is the difference between the deprecia

estimated at 15 years and salvage value is 5%. At present, abandoning the old plant in favor of diesel plant is being considered. A market has been found for the old engine and boiler equipme P15,000. The remainder of the old plant can be utilized in the new and is given a valuation of Pt Depreciation has been figured on straight line basis. What is the difference between the deprecia

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 4E

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Similar questions

A boiler was bought for P1,500,000 cost of installation and shipping amounted to P200,000. The estimated salvage value after 20 years is 10% of the unit cost. Twelve years later the boiler will be rehabilitated at a cost of P300,000. Salvage value and economic life were expected to increase by P50,000 and 5 years respectively. Using the sinking fund method with 10% interest, determine the book value at the end of 18 years.
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.
An industrial forklift has been in service for several years and management plans to replace it. For the respective study, a planning horizon of five years will be used. The old forklift (defender) has a current market value of $1,500. If the defender were to be retained, it is anticipated that it would generate annual O&M costs of $7,300. It would have a market value of zero at the end of five additional years of service. The new forklift (challenger) will cost $10,000 and will have operating and maintenance costs totaling $5,100. At the end of the planning horizon it will have a market value of $2,500. Determine the preferable alternative by comparing the present value and the minimum acceptable rate of return (before taxes) of 20% per year.
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 $ .
A California utility firm is considering building a 50-megawatt geothermalplant that generates electricity from naturally occurring underground heal. The binary geothermal system will cost $85 million to build and $6 million (including any income-tax effect) to operate per year. (Unlike a conventional fossil fuel plant, this system will require virtually no fuel costs.) The geothermal plant is to last 25 years. At the end of that time, the expected salvage value will be about the same as the cost to remove the plant. The plant will be in operation for 70% (the plant-utilization factor) of the year (or 70% of 8,760 hours per year). If the firm's MARR is 14% per year, determine the cost of generating electricity per kilowatt-hour.
A California utility firm is considering building a 50-megawatt geothermalplant that generates electricity from naturally occurring underground heal. The binary geothermal system will cost $85 million to build and $6 million (including any income-tax effect) to operate per year. (Unlike a conventional fossilfuel plant, this system will require virtually no fuel costs.) The geothermal plant is to last 25 years. At the end of that time, the expected salvage value will be about the same as the cost to remove the plant. The plant will be in operation for 70% (the plant-utilization factor) of the year (or 70% of 8,760 hours per year). If the firm's MARR is 14% per year, determine the cost of generating electricity per kilowatt-hour.
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)
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.
A common economic analysis objective is to find out whether it is more profitable to purchase anasset rather than rent it. A simple case of this dilemma is currently being analyzed by a privatecompany which wants to procure a pick-up truck for regular operation. For the next 24 months,the truck can be leased or purchased. The truck costs $9,500 if purchased now in cash. If leased,the monthly lease is $358 with the first payment due by the end of the first month. At the end ofthe lease term, 24 months, the truck is returned to the auto dealer with expected final repair costof $1,000 to be paid immediately before return to dealer. If purchased, the truck can be financedthrough monthly payments. The financing nominal interest rate is to be negotiated with thedealer. The financing will require $2,000 down payment (paid now) and monthly paymentsstarting at the end of the first month. After 24 months, it is expected to be worth half its purchaseprice.[a] Over what range of purchase financing…
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.
Cori's Meats is looking at a new sausage system with an installed cost of $495,000. This cost will be depreciated straight-line to zero over the project’s five-year life, at the end of which the sausage system can be scrapped for $73,000. The sausage system will save the firm $175,000 per year in pretax operating costs, and the system requires an initial investment in net working capital of $32,000. If the tax rate is 23 percent and the discount rate is 10 percent, what is the NPV of this project?
A food processing plant consumes 600,000 kW of electric energy annually and pays an average of ₱ 2.00 per kWh. A study is being made to generate its own power to supply the energy required in the food processing plant, and the power plant installation would cost ₱ 2,000,000.00. Annual operation and maintenance is ₱ 800,000, other expenses cost ₱ 100,000 per year. The life of the power plant is 15 years; salvage value at the end of life is ₱ 200,000; annual taxes and insurances, 6% of first cost; and interest rate is 15%. Determine if the power plant is justifiable using: a. Rate of Return Method b. Annual Worth Method c. Present Worth Method d. Future Worth Method