Two methods of carrying away surface runoff water from a new subdivision are being evaluated. • Method A. Dig a ditch. The first cost would be S60,000, and $25,000 of re-digging and shaping would be required at five-year intervals forever. • Method B. Lay concrete pipe. The first cost would be $150,000, and a replacement would be required at 50-year intervals at a net cost of $180,000 forever Ati- 12%, which method is the better one? Click the icon to view the interest factors for discrete compounding when / 12% per year. The capitalized equivalent worth for method A is S thousand, (Round to the

Two methods of carrying away surface runoff water from a new subdivision are being evaluated. • Method A. Dig a ditch. The first cost would be S60,000, and $25,000 of re-digging and shaping would be required at five-year intervals forever. • Method B. Lay concrete pipe. The first cost would be $150,000, and a replacement would be required at 50-year intervals at a net cost of $180,000 forever Ati- 12%, which method is the better one? Click the icon to view the interest factors for discrete compounding when / 12% per year. The capitalized equivalent worth for method A is S thousand, (Round to the

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 1E: A firm has the opportunity to invest in a project having an initial outlay of $20,000. Net cash...

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Consider a project that has an up-front cost of $100. In its first year it earns $30, and then in each subsequent year it earns an additional $10, so that in its second year it earns $40, the following year it earns $50, etc. The project lasts for 8 years so that in the final year its revenue is $100. The project is expected to repeat indefinitely. It has a MARR=13%. The NPW is within $5 of a)601 b)611 c)621 d)631 e)641 f) none
You have a project with the net cash flow summarized below. The project is not suitable for direct reinvestment, so incoming revenue will be placed into an external account that yields 2.5%. (The "External Reinvestment Rate" is 2.5%). What is the ERR for this project? (Provide your answers in digits only with 2 decimal places. No comas or pesos or percent.)
A rural community/company is considering an investment in a cottage industry for which the net cash flows have been estimated as follows: i) What is the NPV if the discount rate is 10%? ii) Using discount rates of 10% and 14% calculate the IRR? iii) Is this project acceptable?
Consider the following two mutually exclusive service projects with projectlives of three years and two years, respectively. (The mutually exclusive service projects will have identical revenues for each year of service.) The interest rate is known to be 12%. Net Cash Flow End of Year Project A Project B 0 -$1,000 -$800 1 -400 -200 2 -400 -200+0 3 -400+200 If the required service period is six years and both projects can be repeated with the given costs and better service projects are unavailable in the future, which project is better and why? Choose from the following options:(a) Select Project B because it will save you $344 in present worth over the required service period.(b) Select Project A because it will cost $1,818…
The government is considering undertaking one of the four projects A1, A2, A3, and A4. These projects are mutually exclusive, and the estimated present values of their costs and of their benefits are shown in millions of dollars as follows: All of the projects have the same duration. Assuming that there is no donothing alternative, which alternative would you select? Justify your choice by using a benefit-cost ratio on incremental investment (BC(i)).
What process does the net present value method use to help management determine whether a project is acceptable to a company? Options : A. It discounts net cash flows to their present value and then compares that value to the capital outlay required by the project.B. It determines the interest rate that will cause the present value of the capital expenditure to equal the present value of the expected net cash flows.C. It divides the present value of net cash flows by the initial investment to determine the profitability index of the project.D. It identifies the time period required to recover the cost of the capital investment from the net annual cash flow produced by the project.
Use a calculator for this exercise.Suppose you obtain a five-year lease for a Porsche and negotiate a selling price of $143,000. The annual interest rate is 8.4%, the residual value is $76,000, and you make a down payment of $7000. Find each of the following. (a) The net capitalized cost$ (b) The money factor (rounded to four decimal places)(c) The average monthly finance charge (rounded to the nearest cent)$ (d) The average monthly depreciation (rounded to the nearest cent)$ (e) The monthly lease payment (rounded to the nearest cent)$
It is proposed to reconstruct a 10-mile 4-lane highway with flexible pavements in Year 2021. The initial cost (per lane-mile) would be $200,000 and it would have zero salvage value at the end of its service life of 25 years. The annual maintenance cost would be $2,000 per lane-mile, with a 5 percent increase annually. Assume an annual effective discount rate of 4%, calculate the net present agency costs.
Consider the following two mutually exclusive projects: (a) At an interest rate of 25%, which project would you recommend choosing?(b) Compute the area of negative project balance, discounted payback period, and area of positive project balance for each project. Which project isexposed to a higher risk of loss if either project terminates at the end ofyear 2?
Smith and Co. has to choose between two mutually exclusive projects. If it chooses project A, Smith and Co. will have the opportunity to make a similar investment in three years. However, if it chooses project B, it will not have the opportunity to make a second investment. The following table lists the cash flows for these projects. If the firm uses the replacement chain (common life) approach, what will be the difference between the net present value (NPV) of project A and project B, assuming that both projects have a weighted average cost of capital of 10%? Cash Flow Project A Project B Year 0: –$17,500 Year 0: –$40,000 Year 1: 10,000 Year 1: 8,000 Year 2: 16,000 Year 2: 16,000 Year 3: 15,000 Year 3: 15,000 Year 4: 12,000 Year 5: 11,000 Year 6: 10,000 $15,731 $11,012 $12,585 $9,439 $14,158 Smith and Co. is considering a three-year project that has a weighted average cost of capital…
The annual benefits of $4,000 every year for three years may be obtained for an investment on a production equipment costing $20,000 with a salvage value of $5,000. If the interest rate is 6%, choose the right equation to determine the NPW. Group of answer choices NPW = -20,000 + 4,000(P/A, 6%, 3) + 5,000(P/F, 6%, 3) NPW = -20,000(P/F, 6%, 3) + 4,000(P/A, 6%, 3) + 5,000(P/F, 6%, 3) NPW = 20,000(F/P, 6%, 3) + 4,000(F/A, 6%, 3) + 5,000 NPW = 20,000(P/F, 6%, 3) + 4,000(F/A, 6%, 3) + 5,000
Show that the same selection is made with: a. The PW Method b. The IRR method c. The ERR method d. Would leasing crane A for nine years, assuming the same costs per year as for three years, be preferred over your present selection? (ϵ = MARR = 15%)