The following pair of assets differ only in the MARR. The problem asks you to determine the effect of this difference or the economic life and to explain the result. All assets decline in value by 20 percent of current value each year. Installation costs are zero for all assets. Further data concerning the four pairs of assets are given in the table that follows. Asset First Cost A B $130,000 $130,000 Initial Operating Cost $35,000 $35,000 Rate of Operating Cost Increase 11.5%/year 11.5%/year MARR 5% 25%

The following pair of assets differ only in the MARR. The problem asks you to determine the effect of this difference or the economic life and to explain the result. All assets decline in value by 20 percent of current value each year. Installation costs are zero for all assets. Further data concerning the four pairs of assets are given in the table that follows. Asset First Cost A B $130,000 $130,000 Initial Operating Cost $35,000 $35,000 Rate of Operating Cost Increase 11.5%/year 11.5%/year MARR 5% 25%

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 2E

See similar textbooks

Similar questions

The following pair of assets differ only in the MARR. The problem asks you to determine the effect of this difference on the economic life and to explain the result. All assets decline in value by 20 percent of current value each year. Installation costs are zero for all assets. Further data concerning the four pairs of assets are given in the table that follows. Asset First Cost Initial Operating Cost Rate of Operating Cost Increase MARR A $120,000 $30,000 12.5% 5% B $120,000 $30,000 12.5% 25% a. Determine the economic lives for assets A and B. The economic life of asset A is (enter your response here) years, and the economic life of asset B is (enter your response here) years. b. Create a diagram showing the EAC(capital), the EAC(operating), and the EAC(total) for assets A and B. c. Explain the difference in economic life between A and B.
Consider a five-year MACRS asset, which can be purchased at $80.000. Thesalvage value of this asset is expected to be $42,000 at the end of three years.What is the amount of gain (or loss) when the asset is disposed of at the end of three years?(a) Gain $11,280(b) Gain $9,860(c) Loss $9,860(d) Gain $18,960
The following data regarding Atlas Construction Company are available:Current assets $300,000Current liabilities 200,000Long-term liabilities 500,000Total net worth 200,000What is the value of the company’s fixed assets?
The following are data from a production, calculate; The Break-even point in terms of sales value and in . The production demand is at 20,000 units. What is the cw1ent production profit? If the management decides to lower dow11its selling price by 50% given the same demand, will this be a sound decision? Justify. Monthly Fixed Factory Overhead Cost = P600,000 Monthly Fixed Selling Overhead Cost = Pl20,000 Va1iable Manufacturing Cost per Unit = P220 Va1iable Selling Cost per Unit = P30 Variable Distribution Cost per Units = P50 Selling Price per limit = P400
A process plant making 5000kg /day of a product selling for $1.75 per kg has annual directproduction costs of $2 million at 100 percent capacity and other fixed costs of $700,000. What isthe fixed charge per kg at the break-even point? If the selling price of the product is increased by10 percent, what is the dollar increase in net profit at full capacity if the income tax rate is 35percent of gross earnings?
A company is considering purchasing a machine for manufacturing that costs $30,000. The salvage value and O&M costs for the next 7 years is given in the following table. The Equivalent Uniform Annual Cost (EUAC) is computed for each year assuming the equipment was sold at the end of that year and a MARR of 6%. What is the optimal economic life of the machine? Yr Salvage Value O&M Costs EUAC 1 $15,000 $1,200 $18,000 2 $14,400 $2,100 $11,909 3 $13,800 $3,000 $10,753 4 $13,200 $3,900 $10.825 5 $12,600 $4,800 $11,382 6 $12,000 $5,700 $12,178 7 $11,400 $6,600 $13,106
A man is considering putting up his own enterprise, where an investment of 800,000 will be required and will take 15 years to recoup. He estimates his annual sales at 800,000 along with the following operating costs. Materials =160,000/ yearLabor = 280,000/ yearOverhead = (40,000 + 10% of sales)/ yearSelling Expense = 60,000/ yearThe man will give up his regular job paying 216,000 Php per year and devote all his time to the operation of his business, this will result in decreasing his labor cost by 40,000 per year, material cost by 28,000 per year and overhead cost by 32,000 per year. If the man expects to earn at least 20% of his capital, should he invest? Solve using a) Rate of return method b) annual worth method c)present worth method d)equivalent uniform annual cost method
A Civil Engineer is considering establishing his own company. An investment of $4,000,000 will berequired, which will be recovered in 15 years.It is estimated that revenue will be $8,000,000 per year and that operating expenses will be as follows:Materials $1,600,000 per yearLabor $2,800,000 per yearOverhead $400,000 + 10% of the yearly revenueOther expenses $600,000 per yearThe engineer will give up his regular job paying $2,160,000 per year and devote his time fulltime to theoperation of the business; this will result in decreasing labor costs by $400,000 per year, material costs by$280,000 per year and overhead cost by $320,000 per year. If the man expects to earn at least 20% ofhis capital, should he invest? NOTE: Use Annual Worth Method.
A Civil Engineer is considering establishing his own company. An investment of $4,000,000 will berequired, which will be recovered in 15 years.It is estimated that revenue will be $8,000,000 per year and that operating expenses will be as follows:Materials $1,600,000 per yearLabor $2,800,000 per yearOverhead $400,000 + 10% of the yearly revenueOther expenses $600,000 per yearThe engineer will give up his regular job paying $2,160,000 per year and devote his time fulltime to theoperation of the business; this will result in decreasing labor costs by $400,000 per year, material costs by$280,000 per year and overhead cost by $320,000 per year. If the man expects to earn at least 20% ofhis capital, should he invest? NOTE: Use Future Worth Method.
Cost component Alpha Beta Charlie development 100,000 immediately 150,000 year 1 10,000 immediately None Programming 45,000 immediately 35,000 year 1 45,000 immediately 30,000 year 1 None Operations 50,000 1-10 80,000 years 1-10 150,000 years 1-10 support 30,000 1-10 40,000 years 1-10 none If each system is expected to have a 10-year life, 1. calculate the net present value for each system if the cost of capital is 8%. 2. Specify which system should be selected and why
I want you to provide me the Cash Flow diagram of the problem. Only cash flow diagram, the solution is already there. Thanks in advance! The annual estimated cash flow is $140,000. The salvage value will be 12% of the initial price after 5 years. The discount rate (r) is 18% Let us assume the initial price of the doughnut machine be X. PV of cash inflows=PV of cash outflows$140,000×PVAF4,18%+.12X×PVF5,18%=X$140,000×2.69006180465+.12X×0.43710921621=X$376,608.652651=X-0.05245310594$376,608.652651=0.94754689406XX=$397,456.479475 The maximum purchase price of the doughnut machine is $397,456.48.
Halloween, Inc., is considering a new product launch. The firm expects to have an annual operating cash flow of $9.6 million for the next 9 years. The discount rate for this project is 13 percent for new product launches. The initial investment is $39.6 million. Assume that the project has no salvage value at the end of its economic life. a. What is the NPV of the new product? (Do not round intermediate calculations and enter your answer in dollars, not millions of dollars, rounded to 2 decimal places, e.g., 1,234,567.89.) b. After the first year, the project can be dismantled and sold for $26.6 million. If the estimates of remaining cash flows are revised based on the first year’s experience, at what level of expected cash flows does it make sense to abandon the project? (Do not round intermediate calculations and enter your answer in dollars, not millions of dollars, rounded to 2 decimal places, e.g., 1,234,567.89.)