Question 3A forestry company is looking for sustainable power generation options for a remote location inNorthern Ontario. The default (readily available) option is to connect the site to the regularhydroelectric grid and pay an estimated S11,000 in annual energy cost. The company identifiedtwo alternative energy sources: solar and wind. The solar energy alternative has a useful life of 6years, will require procurement and installation cost of $22,000 and annual maintenance cost of$1,500. The solar system will have a salvage value after 6 years of $1,000. The wind system hasa useful life of 8 years, with an initial cost of $15,500 and annual operation and maintenance costof $1,600, and a decommissioning cost (negative salvage value) after 8 years of S2,000. Bothsystems will generate enough power such that the electric system will be self-sufficient and runentirely without the need of connecting to regular hydroelectric grid.For economic analysis, the MARR is set to be 6%, and alternatives are replicable in thefuture with exact cost/salvage estimates; including initial and running costs. The forestrycompany intends to reforest and harvest the land in a sustainable way and therefore has no enddate for this project's life. Using an appropriate method of analysis, choose the better alternative.Show calculation steps leading to this choice and provide explanations whenever possible.

The annual worth (AW) an incentive for an option is involved two parts: capital recovery n for the…

Answered: rthern Ontario. The default (readily…

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 10E

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Leonard Motors is trying to increase its international export business. It is considering several alternatives. Two were available earlier (per Problem 5.11), but a new one has recently been proposed by a potential internationally partnering corporation, which has funds to invest. Option 1: Equipment costs $900,000 now and another $560,000 in 2 years Annual M&O costs of $79,000 Life of project is 10 years Salvage value is nil Option 2: Subcontract production for annual payment of $280,000 for years 0 (now) through 10 Annual M&O cost is zero Life of project is 10 years Salvage value is nil Option 3: Costs are $400,000 in year 1 plus an additional 5% each year through year 5 Revenues are $50,000 per year for years 6 through 10 Life of project is 10 years Equipment salvage value is $100,000 paid in year 10 by international partner Due to stock market pressures, Leonard plans to change its MARR from its current 20% per year to 15% per year, compounded quarterly. Use PW analysis to…
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The California Forest Service is considering two locations for a new state park. Location Ewould require an investment of $3 million and $50,000 per year in maintenance. Location Wwould cost $7 million to construct, but the Forest Service would receive an additional $25,000per year in park use fees. The operating cost of location W will be $65,000 per year. The revenueto park concessionaires will be $500,000 per year at location E and $700,000 per year at locationW. The disbenefits associated with each location are $30,000 per year for location E and $40,000per year for location W. Use(a) The B/C method, and(b) The modified B/C method to determine which location, if either, should be selected, using aninterest rate of 12% per year. Assume that the park will be maintained indefinitely.
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Methods of Economy Studies An investment of P 250,000 can be made in a project that will produce a uniform annual revenue of P 192,800 for 5 years and then have a salvage value of 10% of the first cost. Operation and maintenance will be P 72,000 per year. Taxes and insurance will be 4% of the first cost per year. The company expects capital to earn 20% before income taxes. Show whether or not the investment is justified economically using1. Present Worth (PW) method2. Future Worth (FW) method3. Annual Worth (AW) method4. Rate of Return (ROR) method5. Payback (Payout) method
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3 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
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