Required: How low could the new lighting system's annual savings be and still justify acceptance of the proposal by the board of directors? Assume the theater's hurdle rate is 12 percent. (Round final answer to 2 decimal places.) Annual savings
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- (Analysis of Alternatives) Assume that Wal-Mart Stores, 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 12,000 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 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 $10.50 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 9 cents per square yard. InstructionsPrepare computations showing which bid should be accepted by Wal-Mart. You may assume that the cost of…A city is evaluating the installation of a garbage incinerator on the outskirts of town. The cost of the unit is $2 million. Environmental impact studies cost $25,000 to be paid prior to construction begins. Annual costs are estimated to include: Plant operating expenses: $30,000. Environmental remediation expenses: $32,000. As a benefit of the incinerator, a cost reduction of $12 per year is estimated to be on the bill of the company's 35,000 customers. The equipment is estimated to have a lifespan of 10 years, after which the incinerator will be dismantled at a cost of $45,000. Assuming the money is raised at 4% interest, how much is the profit ratio at cost of this project? a. 1.625 b. 1.597 c. 1.634 d. 1.651 e. None of the aboveA city government is considering two types oftown-dump sanitary systems. Design A requires aninitial outlay of $400,000 with annual operating andmaintenance costs of $50,000 for the next 15 years;design B calls for an investment of $300,000 withannual operating and maintenance costs of $80,000per year for the next 15 years. Fee collections fromthe residents would again be $85,000 per year. Theinterest rate is 8%, and no salvage value is associatedwith either system.(a) Using the benefit–cost ratio BC(i), which systemshould be selected?M16_PARK9091_06_GE_C16.indd 901 10/22/15 5:22 PM902 Chapter 16 Economic Analysis in the Service SectIf a new design (design C), which requires aninitial outlay of $350,000 and annual operatingand maintenance costs of $65,000, is proposed,would your answer in part (a) change?
- Assume that Wal-Mart Stores, 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 12,000 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 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 $10.5 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 9 cents per square yard.Click here to view factor tablesCompute present value of the bids. You may assume that the cost of capital is 9%, that the annual maintenance…Assume that Wal-Mart Stores, 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 12,000 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 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 $10.50 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 9 cents per square yard. Instructions Prepare computations showing which bid should be accepted by Wal-Mart. You may assume that the cost of capital is 9%, that…Assume that Wal-Mart Stores, 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 11,200 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 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 $10.50 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 10 cents per square yard. Compute present value of the bids. You may assume that the cost of capital is 10%, that the annual maintenance expenditures are incurred at…
- Assume that Wal-Mart Stores, 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 12,100 square yards.Bid A: A surface that costs $6.00 per square yard to install. This surface will have to be replaced at the end of 5 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 $10.00 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 9 cents per square yard. Compute present value of the bids. You may assume that the cost of capital is 9%, that the annual maintenance expenditures are incurred at the…A city is trying to decide whether to build a parking garage. An engineeringplan calculates that the building will cost $2 million with costs of $200,000 per year to operate. Our analysis of operating revenue determines that the garage will start to earn revenues of $500,000 per year in the second year. The city is interested in knowing whether this project will be profitable over the next eight years at 6%. The project's B/C ratio is closest to(a) 1(b)0.87(c) 1.33(d)2.50The city council of Morristown is considering the purchase of one new fire truck. The options are Truck X and Truck Y. The appropriate financial data are as follows (shown): The purchase is to be financed by money borrowed at 12% per year. Use this information to answer, What is the conventional B–C ratio for Truck X? (a) 1.41 (b) 0.87 (c) 1.64 (d) 1.10 (e) 1.15.
- Temporary Housing Services Incorporated (THSI) is considering a project that involves setting up a temporary housing facility in an area recently damaged by a hurricane. THSI will lease space in this facility to various agencies and groups providing relief services to the area. THSI estimates that this project will initially cost $4 million to set up and will generate $20 million in revenues during its first and only year in operation (paid in one year). Operating expenses are expected to total $8 million during this year and depreciation expense will be another $2 million. THSI will require no working capital for this investment. THSI's tax-rate is 20% Assume that THSI's cost of capital for this project is 15%. The net present value (NPV) of this temporary housing project is closest to:Temporary Housing Services Incorporated (THSI) is considering a project that involves setting up a temporary housing facility in an area recently damaged by a hurricane. THSI will lease space in this facility to various agencies and groups providing relief services to the area. THSI estimates that this project will initially cost £6 million to set up and will generate £22 million in revenues during its first and only year in operation (paid in one year). Operating expenses are expected to total £11 million during this year and depreciation expense will be another £2 million. Capital allowance is £3 million only for this year. THSI will require no working capital for this investment. THSI's tax rate is 35%. Ignoring the original investment of £6 million, what is THSI's free cash flow for the first and only year of operation? A. £6.00 million B. £8.20 million C. £7.20 million D. £7.85 millionCity of Oliver is considering automating a process in its accounting department that has been labor-intensive. The equipment currently used in the department can be sold. The new equipment will have a projected useful life of 10 years. The old equipment has a remaining useful life of 10 years. The following data are available to be used in making the decision. Should the city invest in the new equipment? Support your answer with appropriate calculations. Current equipment Current equipment book value $ 30,000 Annual depreciation charges 3,000 Current estimated disposal value 5,000 New equipment Cost $150,000 Annual depreciation charge 12,500 Expected disposal value 25,000 Labor savings each year $ 50,000 Present value factors @ 6% $1…