n order to provide drinking water, a west coast city is considering constructing a mporting water from a nearby community that has a plentiful supply of brackish gi Two alternatives are: 1. A full-sized pipeline can be constructed at a cost of $105 million now. 2. Alternatively, a smaller pipeline can be constructed now for $85 million, an $25,000 per year for 20 years and salvage value $120 million. Both pipelines are expected to have the same useful life and MARR is 6%. Which a

n order to provide drinking water, a west coast city is considering constructing a mporting water from a nearby community that has a plentiful supply of brackish gi Two alternatives are: 1. A full-sized pipeline can be constructed at a cost of $105 million now. 2. Alternatively, a smaller pipeline can be constructed now for $85 million, an $25,000 per year for 20 years and salvage value $120 million. Both pipelines are expected to have the same useful life and MARR is 6%. Which a

Intermediate Financial Management (MindTap Course List)

13th Edition

ISBN:9781337395083

Author:Eugene F. Brigham, Phillip R. Daves

Publisher:Eugene F. Brigham, Phillip R. Daves

Chapter12: Capital Budgeting: Decision Criteria

Section: Chapter Questions

Problem 20P: The Aubey Coffee Company is evaluating the within-plant distribution system for its new roasting,...

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Home Garden Inc. is considering the construction of a distribution warehouse in West Virginia to service its east coast stores based on the following estimates: a. Determine the net present value of building the warehouse, assuming a construction cost of 20,000,000, an annual net cost savings of 4,000,000, and a desired rate of return of 14%. Use the present value tables provided in Appendix A. b. Determine the net present value of building the warehouse, assuming a construction cost of 25,000,000, an annual net cost savings of 2,500,000, and a desired rate of return of 14%. Use the present value tables provided in Appendix A. c. Interpret the results of parts (a) and (b).
The Aubey Coffee Company is evaluating the within-plant distribution system for its new roasting, grinding, and packing plant. The two alternatives are (1) a conveyor system with a high initial cost but low annual operating costs and (2) several forklift trucks, which cost less but have considerably higher operating costs. The decision to construct the plant has already been made, and the choice here will have no effect on the overall revenues of the project. The cost of capital for the plant is 8%, and the projects’ expected net costs are listed in the following table: What is the IRR of each alternative? What is the present value of the costs of each alternative? Which method should be chosen?
Austins cell phone manufacturer wants to upgrade their product mix to encompass an exciting new feature on their cell phone. This would require a new high-tech machine. You are excited about his new project and are recommending the purchase to your board of directors. Here is the information you have compiled in order to complete this recommendation: According to the information, the project will last 10 years and require an initial investment of $800,000, depreciated with straight-line over the life of the project until the final value is zero. The firms tax rate is 30% and the required rate of return is 12%. You believe that the variable cost and sales volume may be as much as 10% higher or lower than the initial estimate. Your boss understands the risks but asks you to explain the alternatives in a brief memo to the board, Write a memo to the Board of Directors objectively weighing out the pros and cons of this project and make your recommendation(s).
The Logan Well Services Group is considering two sites for storage and recovery of reclaimed water. The mountain site (MS) will use injection wells that cost $4.2 million to develop and $280,000 per year for M&O. This site will be able to accommodate 150 million gallons per year. The valley site (VS) will involve recharge basins that cost $11 million to construct and $400,000 per year to operate and maintain. At this site, 720 million gallons can be injected each year. If the value of the injected water is $3.00 per thousand gallons, which alternative, if either, should be selected according to the B/C ratio method? Use an interest rate of 8% per year and a 20-year study period. The B/C ratio is . Select alternative (Click to select) neither of the alternatives mountain site valley site .
Two sites are currently under consideration for a bridge over a small river. The north site requires a suspension bridge. The south site has a much shorter span, allowing for a truss bridge, but it would require new road construction.The suspension bridge will cost $500 million with annual inspection andmaintenance costs of $350,000. In addition, the concrete deck would have to be resurfaced every 10 years at a cost of $1,000,000. The truss bridge and approach roads are expected to cost $250 million and have annual maintenance costs of $200,000. This bridge would have to be painted every 3 years at a cost of $400,000. In addition, the bridge would have to be sandblasted every 10 years at a cost of $1,900,000. The cost of purchasing right-of-way is expected to be $20 million for the suspension bridge and $150 million for the truss bridge. Compare the alternatives on the basis of their capitalized cost if the interest rate is 6% per year.
An electric utility is considering a new power plant in northern Arizona. Power from the plant would be sold in the Phoenix area, where it is badly needed. Because the firm has received a permit, the plant would be legal, but it would cause some air pollution. The company could spend an additional $40 million at Year 0 to mitigate the environmental problem, but it would not be required to do so. The plant without mitigation would cost $240 million, and the expected cash inflows would be $80 million per year for 5 years. If the firm does invest in mitigation, the annual inflows would be $84 million. Unemployment in the area where the plant would be built is high, and the plant would provide about 350 good jobs. The risk-adjusted WACC is 17%. a. Calculate the NPV and IRR with and without mitigation. b. How should the environmental effects be dealt with when evaluating this project? c. Should this project be undertaken? If so, should the firm do the mitigation? Why or why not?
The city of San Fernando contemplates to increase the capacity of her existing water transmission lines. Two plans are under consideration. plan a requires the construction of a parallel pipeline , the flow being maintained by gravity. The initial cost is 2,750,000 and the life is 40 years, with an annual operating cost of 5,000. Plan B requires the construction of a booster pumping station costing 1,050,000 with the life of 40 years. The pumping equipment cost an additional amount of 250,000. It has a life of 20 years and a salvage value of 25,000. The annual operating cost is 165,000. Which is the most economical plan if the interest rate is 12% and how much is the difference between the two plans. Use Present worth Method.
A town in northern Colorado is planning on investing in a water purification system. Three mutually exclusive systems have been proposed, and their capital investment costs and net annual benefits are the following (salvage values are negligible). If the town’s MARR is 10% per year, use the B–C ratiomethod to determine which system is best.
The City of San Antonio is considering various options for providing water in its 50-year plan, including desalting. One brackish aquifer is expected to yield desalted water that will generate revenue of $4.1 million per year for the first 6 years, after which less production will decrease revenue by 10% per year each year. If the aquifer will be totally depleted in 24 years, what is the present worth of the desalting option revenue at an interest rate of 5% per year? The present worth of the desalting option revenue at an interest rate of 5% per year is determined to be $
The City of San Antonio is considering various options for providing water in its 50-year plan, including desalting. One brackish aquifer is expected to yield desalted water that will generate revenue of $4.1 million per year for the first 4 years, after which less production will decrease revenue by 10% per year each year. If the aquifer will be totally depleted in 20 years, what is the present worth of the desalting option revenue at an interest rate of 6% per year?
A regional municipality is studying a water supply plan for its tri-city and surrounding area to the end of year 2070. To satisfy the water demand, one suggestion is to construct a pipeline from a major lake some distance away. Construction would start in 2030and take five years at a cost of $25 million per year. The cost of maintenance and repairs starts after completion of construction and for the first year is $3 million, increasing by 1 percent per year thereafter. At an interest rate of 8 percent, what is the presentworth of this project? Assume all cash flows take place at year-end. Consider the present to be the end of 2025/beginning of 2026. Assume there is no salvage value at the end of year 2070.Click the icon to view the table of compound interest factors for discrete compounding periods when i=8%. Worth of the project in milion ???
An electric utility is considering a new power plant in northern Arizona. Power from the plant would be sold in the Phoenix area, where it is badly needed. Because the firm has received a permit, the plant would be legal; but it would cause some air pollution. The company could spend an additional $40 million at Year 0 to mitigate the environmental problem, but it would not be required to do so. The plant without mitigation would require an initial outlay of $269.75 million, and the expected cash inflows would be $90 million per year for 5 years. If the firm does invest in mitigation, the annual inflows would be $93.85 million. Unemployment in the area where the plant would be built is high, and the plant would provide about 350 good jobs. The risk adjusted WACC is 17%. Calculate the NPV and IRR with mitigation. Enter your answer for NPV in millions. For example, an answer of $10,550,000 should be entered as 10.55. Negative values, if any, should be indicated by a minus sign. Do not…