Leonard, a company that manufactures explosion-proof motors, is considering two alternatives for expanding its international export capacity. Option 1 requires equipment purchases of $810,000 now and $510,000 two years from now, with annual M&O costs of $56,000 in years 1 through 10. Option 2 involves subcontracting some of the production at costs of $205,000 per year beginning now through the end of year 10. Neither option will have a significant salvage value. Use a present worth analysis to determine which option is more attractive at the company's MARR of 10% per year. The present worth of option 1 is $ and that of option 2 is $ Option (Click to select) v is more attractive.

Leonard, a company that manufactures explosion-proof motors, is considering two alternatives for expanding its international export capacity. Option 1 requires equipment purchases of $810,000 now and $510,000 two years from now, with annual M&O costs of $56,000 in years 1 through 10. Option 2 involves subcontracting some of the production at costs of $205,000 per year beginning now through the end of year 10. Neither option will have a significant salvage value. Use a present worth analysis to determine which option is more attractive at the company's MARR of 10% per year. The present worth of option 1 is $ and that of option 2 is $ Option (Click to select) v is more attractive.

ENGR.ECONOMIC ANALYSIS

14th Edition

ISBN:9780190931919

Author:NEWNAN

Publisher:NEWNAN

Chapter1: Making Economics Decisions

Section: Chapter Questions

Problem 1QTC

See similar textbooks

Similar questions

ABC Beverage, LLC, purchases its 355-ml cans in large bulk from Wald-China Can Corporation. The finish on the anodized aluminum surface is produced by mechanical finishing technologies called brushing or bead blasting. Engineers at Wald are switching to more efficient, faster, and cheaper machines to supply ABC. Use the estimates and MARR = 8% per year to select between the two alternatives. Brush Alternative Bead Blasting Alternative P $-400,000 $-400,000 n 6 years large Salvage Value $50,000 no value AOC Nonlabor $-60,000 in year 1, decreasing by $2500 annually starting in year 2 $-70,000 per year
E3 Your company plans to raise price on product A by 5% per year. Due to competition, sales volume from product A is expected to decline at 10% per year. Revenue will be $5M for this year. Alternatively, based on the projection from the marketing department, you may reduce the sales volume decline from 10% to 5% if the price is kept unchanged. The product will be discontinued at the end of year 5 for both scenarios. If the firm's TVOM is 10%, Determine the revenue cash flow streams for both alternatives. What is the Excel financial function to compute PW of the revenue streams?
A company sells two products, A and B. The sale mix consists of acomposite unit of 2 units of A for every 5 units of Y (2.5) Fixed cost arePhp247,500. The unit contribution margins for A and B are, Php12.50 andPhp6.00, respectively. Considering the company as a whole, the numberof composite units to breakeven is
Mid-Valley Industrial Extension Service, a state-sponsoredagency, provides water quality sampling services toall business and industrial firms in a 10-county region.Last month, the service purchased all necessary lab equipmentfor full in-house testing and analysis. Now, an outsourcingcompany has offered to take over this function ona per-sample basis. Data and quotes for the two optionshave been collected. The MARR for government projectsis 5% per year and a study period of 8 years is chosen.In-house: Equipment and supplies initially cost$125,000 for a life of 8 years, an AOCof $15,000, and annual salaries of$175,000. Sample costs average $25.There is no significant salvage valuefor the equipment and supplies currentlyowned.Outsourced: Cost averages $100 per sample for thefirst 5 years, increasing to $125 persample for years 6 through 8. Determine the breakeven number of tests between the two options.
Mid-Valley Industrial Extension Service, a state-sponsoredagency, provides water quality sampling services toall business and industrial firms in a 10-county region.Last month, the service purchased all necessary lab equipmentfor full in-house testing and analysis. Now, an outsourcingcompany has offered to take over this function ona per-sample basis. Data and quotes for the two optionshave been collected. The MARR for government projectsis 5% per year and a study period of 8 years is chosen.In-house: Equipment and supplies initially cost$125,000 for a life of 8 years, an AOCof $15,000, and annual salaries of$175,000. Sample costs average $25.There is no significant salvage valuefor the equipment and supplies currentlyowned.Outsourced: Cost averages $100 per sample for thefirst 5 years, increasing to $125 persample for years 6 through 8. Use a spreadsheet to graph the AW curves for both options for test loads between 0 and 5000 per year in increments of 1000 tests. What is the…
For a new product, the marketing department predicts that sales are expected to be 100,000 units in year 1, increasing by 15,000 each subsequent year to 175,000 in year 6. There are 2 different manufacturing process available: Option A: A manufacturing machine with up-front equipment purchase cost of $150,000 and the manufacturing cost per unit is $0.70. At the end of 6 years, the equipment salvage recovery is $20,000. Option B: A machine with up-front purchase cost of $200,000 with a manufacturing cost of $0.50 per unit, and equipment salvage recovery at the end of 6 years of $40,000. Assume an interest rate of 5% and a production period of 6 years. Which option should you choose based on a present equivalent evaluation with no considerations for depreciation? 1. What is the present equivalent cost of Option A? 2. What is the present equivalent cost of Option B?
Nadine Chelesvig has patented her invention. She is offering a potential manufacturer two contracts for the exclusive right to manufacture and market her product. Plan A calls for an immediate single lump sum payment to her of $30,000. Plan B calls for an annual payment of $1,000 plus a royalty of $0.50 per unit sold. The remaining life of the patent is10 years. Nadine uses a MARR of 10%/year. Solve, a. What must be the uniform annual sales volume of the product for Nadine to be indifferent between the contracts, based on a present worth analysis? b. If the sales volume is below the volume determined in (a), which contract would the manufacturer prefer?
Fairmont Industries primarily relies on 100% equity financing to fund projects. A goodopportunity is available that will require $250,000 in capital. The Fairmont owner can supply themoney from personal investments that currently earn an average of 8.5% per year. The annualnet cash flow from the project is estimated at $30,000 for the next 15 years. Alternatively, 60%of the required amount can be borrowed for 15 years at 9% per year. If the MARR is the WACC,determine which plan, if either is better. This is a before-tax analysis
(a) How long would it take to recover an investment of $245,000 in enhanced CNC controls that include axis control to eight axes on the milling model, if the associated income is $92,000 per year, expense is $38,000 per year, and the salvage value is estimated to be 15% of the first cost? Use a MARR of 15% per year. (b) Also, write the spreadsheet function that determines np.
For the two alternatives, demonstrate that the sum of the incremental cash flow series (Z − X) over the LCM is equal to the difference in the sums of the individual cash flow series for X and Z. System X Z First cost, $ −40,000 −95,000 AOC, $ per year −12,000 −5,000 Salvage value, $ 6,000 14,000 Life, years 3 6
A man purchased a house for P425,000.00. In the first month that he owned the house, he spent P75,000.00 on repairs and remodeling. Immediately after the house was remodeled, he was offered (Option 1) P545,000.00 to sell the house. After some consideration, he decided to keep the house and have it rented for P4,500.00 per month starting two months after the purchase. (Option 2) He collected rent for 15 months and then sold the house for P600,000.00. If the interest rate was 1.5% per month, which option is better?
Equipment needed at Valero Corporation refinery for the conversion of corn stock toethanol, a cleaner burning gasoline additive, will cost $175,000 and have net cashflows of $35,000 the first year, increasing by $10,000 per year over the life of 5 years.Develop a spreadsheet chart that plots AW vs interest rate to show where (what interestrate) the project switches from financially justified to unjustified. Use AW as the verticalaxis of the chart, and interest (i) as the horizontal axis of the chart. Use a range ofinterest rates spanning from 10% to 20%, and use increments of 1%. Label both axesand use a title for the chart.