Two investments involving a virtual mold apparatus for producing dental crowns qualify for different property classes. Investment A has a cost of $54,900, lasts 9 years with no salvage value, and costs $150,000 per year in operating expenses. It is in the 3-year property class. Investment B has a cost of $83,000.00, lasts 9 years with no salvage value, and costs $125,000 per year. Investment B, however, is in the 7-year property class. The company marginal tax rate is 25%, and MARR is an after-tax 10%. a. Based upon the use of MACRS-GDS depreciation, compare the AW of each alternative. AWA - $ AWB = $ Which should be selected? (Investment A; Investment B) Investment B b. What must be Investment B's cost of operating expenses for these two investments to be equivalent? $

Two investments involving a virtual mold apparatus for producing dental crowns qualify for different property classes. Investment A has a cost of $54,900, lasts 9 years with no salvage value, and costs $150,000 per year in operating expenses. It is in the 3-year property class. Investment B has a cost of $83,000.00, lasts 9 years with no salvage value, and costs $125,000 per year. Investment B, however, is in the 7-year property class. The company marginal tax rate is 25%, and MARR is an after-tax 10%. a. Based upon the use of MACRS-GDS depreciation, compare the AW of each alternative. AWA - $ AWB = $ Which should be selected? (Investment A; Investment B) Investment B b. What must be Investment B's cost of operating expenses for these two investments to be equivalent? $

ENGR.ECONOMIC ANALYSIS

14th Edition

ISBN:9780190931919

Author:NEWNAN

Publisher:NEWNAN

Chapter1: Making Economics Decisions

Section: Chapter Questions

Problem 1QTC

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For the operation of part R-193, two operations are being considered. The capital investment associated with each operation is identical. Each completed part can be sold at Php 7 per part. Operation 1 produces 2,000 parts per hour. After each hour, the tooling must be adjusted by the machine operator. The adjustment takes 20 minutes. The machine operator for Operation 1 is paid Php350 per hour. Operation 2 produces 1,300 parts per hour, but the tooling needs to be adjusted by the operator only once every two hours. The adjustment takes 30 minutes. The machine operator for Operation 2 is paid Php 192.5 per hour. Assume an 8-hour work day. Further assume all parts produced can be sold. Should operation 1 or Operation 2 be recommended?
Illustrate the procedure of break-even analysis based on NPW?
Two alternative designs are under consideration for a tapered fastening pin. The fastening pins are sold for $0.70 each. Either design will serve equally well and will involve the same material and manufacturing cost except for the lathe and drill operations. Design A will require 12 hours of lathe time and 5 hours of drill time per 1,000 units. Design B will require 7 hours of lathe time and 8 hours of drill time per 1,000 units. The variable operating cost of the lathe, including labor, is $18.60 per hour. The variable operating cost of the drill, including labor, is $16.90 per hour. Finally, there is a sunk cost of $5,000 for Design A and $9,000 for Design B due to obsolete tooling. Solve, a. Which design should be adopted if 125,000 units are sold each year? b. What is the annual saving over the other design?
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You are evaluating a project for The Ultimate recreational tennis racket, guaranteed to correct that wimpy backhand. You estimate the sales price of The Ultimate to be $300 per unit and sales volume to be 1,000 units in year 1, 1,250 units in year 2, and 1,325 units in year 3. The project has a three-year life. Variable costs amount to $200 per unit and fixed costs are $50,000 per year. The project requires an initial investment of $150,000 in assets that will be depreciated straight-line to zero over the three-year project life. The actual market value of these assets at the end of year 3 is expected to be $25,000. NWC requirements at the beginning of each year will be approximately 10 percent of the projected sales during the coming year. The tax rate is 21 percent and the required return on the project is 10 percent. What will the free cash flow for this project be in year 2? Multiple Choice $53,000 $102,450 $107,250 $49,950
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. A construction company is considering two possibilities for warehouse operations. Proposal 1 would require the purchase of a forklift for $5,000 and 500 pallets that cost $5 each. The average life of a pallet is assumed to be 2 years. If the forklift is purchased, the company must hire an operator for $9,000 annually and spend $600 per year on maintenance and operation. The life of the forklift is expected to be 12 years with a $700 salvage value. Alternatively, proposal 2 requires that the company hire 2 men to operate power driven hand trucks at a cost of $7,500 per man. One hand truck will be required at a cost of $900. The hand truck will have a life of 6 years with no salvage value. If the company's minimum attractive rate of return is 12%, which alternative should be selected? Use the annual equivalent method.
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The engineer of a medium scale industry was instructed to prepare at least two plans which is to be considered by management for the improvement of their operations. Plan “A” calls for an initial investment of P200,000 now with a prospective salvage value of 20% of the first cost 20 years hence. The operation and maintenance disbursements are estimated to be P15,000 a year and taxes will be 2% of first cost. Plan “B” calls for an immediate investment of P140,000 and a second investment of P160,000 eight years later. The operation and maintenance disbursements will be P9,000 a year for the initial installation, and P8,000 a year for the second installation. At the end of 20 years the salvage value shall be 20% of the investments. Taxes will be 2% of the first cost. If money worth 12%, which plan would you recommend? (a) Use the present worth cost method (PWC) (b) Use the equivalent uniform annual cost method (EUAC)