Two plans are available for a company to obtain automobiles for its salesmen. Plan A: Lease the cars and pay P0.28 per mile. Plan B: Purchase the cars for P6415. Each car has an economic life of three years, after which itcan be sold P1999. Gas and oil cost P0.05 per kilometer. Insurance is P50,000 per year. A. How many miles must the cars be driven each year for the two plans to have the same costs? Use an interest rate of 10%. (Hint: Use EUAC Method)

Two plans are available for a company to obtain automobiles for its salesmen. Plan A: Lease the cars and pay P0.28 per mile. Plan B: Purchase the cars for P6415. Each car has an economic life of three years, after which itcan be sold P1999. Gas and oil cost P0.05 per kilometer. Insurance is P50,000 per year. A. How many miles must the cars be driven each year for the two plans to have the same costs? Use an interest rate of 10%. (Hint: Use EUAC Method)

Managerial Economics: A Problem Solving Approach

5th Edition

ISBN:9781337106665

Author:Luke M. Froeb, Brian T. McCann, Michael R. Ward, Mike Shor

Publisher:Luke M. Froeb, Brian T. McCann, Michael R. Ward, Mike Shor

Chapter5: Investment Decisions: Look Ahead And Reason Back

Section: Chapter Questions

Problem 5.4IP

See similar textbooks

Similar questions

In the Southern Company Managerial Challenge, which alternative for complying with the Clean Air Act creates the greatest real option value? How exactly does that alternative save money? Why? Explain why installing a scrubber burns this option.
A firm has the opportunity to invest in a project having an initial outlay of $20,000. Net cash inflows (before depreciation and taxes) are expected to be $5,000 per year for five years. The firm uses the straight-line depreciation method with a zero salvage value and has a (marginal) income tax rate of 40 percent. The firms cost of capital is 12 percent. Compute the IRR and the NPV. Should the firm accept or reject the project?
Burlington Motor Carriers, a trucking company, is considering the installation of a two-way mobile satellite messaging service on its 2,000 trucks. From tests done last year on 120 trucks, the company found that satellite messaging could cut 60% of its $5 million bill for long-distance communications with truck drivers. More importantly, the drivers who used this system reduced the number of "deadhead" miles-those driven without paying loads-by 0.5%. Applying that improvement to all 230 million miles covered by the Burlington fleet each year would produce an extra $1.25 million in savings. Equipping all 2,000 trucks with the satellite hookup will require an investment of $8 million and the construction of a message-relaying system costing $2 million. The equipment and onboard devices will have a service life of eight years and negligible salvage value; they will be depreciated under the five-year MACRS class. Burlington's marginal tax rate is about 38%, and its required minimum…
Sunshine Smoothies Company (SSC) manufactures and distributes smoothies. It is considering the "weight loss" smoothies project. The project would require a $4 million investment outlay today The after-tax cash flows would depend on consumers’ demand. There is a 30% chance that demand will be good, and the project will produce after-tax cash flows of $2 million at the end of each year for the next 3 years. There is a 70% chance that demand will be poor, and the project will produce after-tax cash flows of $1 million at the end of each year for the next 3 years. The project is riskier than the firm's other projects, so it has a WACC of 12%. - The firm will know whether the project is success or not after receiving first year's cash flows from normal operating.. - After receiving the first year's cash flows (no matter what receive $1M or $2M in the first year), the firm will have the option to abandon the project. - If the firm decides to abandon the project, the company will no longer…
A university spent $1.8 million to install solar panels atop a parking garage. These panels will have a capacity of 500 kw, have a life expectancy of 20 years and suppose the discount rate is 10%. If electricity can be purchased for costs of$0.10 per kwh, how many hours per year will the solar panels have to operate to make this project break even? If efficient systems operate for 2,400 hours per year, would the project break even? The university is seeking a grant to cover capital costs. How big of a grant would make this project worthwhile (to the university)?
A common economic analysis objective is to find out whether it is more profitable to purchase anasset rather than rent it. A simple case of this dilemma is currently being analyzed by a privatecompany which wants to procure a pick-up truck for regular operation. For the next 24 months,the truck can be leased or purchased. The truck costs $9,500 if purchased now in cash. If leased,the monthly lease is $358 with the first payment due by the end of the first month. At the end ofthe lease term, 24 months, the truck is returned to the auto dealer with expected final repair costof $1,000 to be paid immediately before return to dealer. If purchased, the truck can be financedthrough monthly payments. The financing nominal interest rate is to be negotiated with thedealer. The financing will require $2,000 down payment (paid now) and monthly paymentsstarting at the end of the first month. After 24 months, it is expected to be worth half its purchaseprice.[a] Over what range of purchase financing…
You have been asked to evaluate whether a project to preserve an area of forest should go ahead or whether the land should be converted to agriculture. The net benefits of ecosystem goods and services have been valued over the next four years at R6000, R10 000, R14 000 and R22 000 respectively. The immediate cost of preserving the forest is R23 500. Assume that MWTP = 90 - 3Q and MC = 10 + 2Q. The discount rate is 7%.
Suppose there is a public park. The annual cost of maintenance is $200,000. Visiting the park is free, and it is visited 210,000 times every year. However, to fund better maintenance of the park, the government wants to make visitors pay $4.70 per visit. Implementing a security system (to prevent visitors from sneaking into the park) will cost $0.50 per visit and $260,000 in annual fixed expenditures. At the same time, maintenance costs are expected to rise by 23%, not including security costs. The number of visits to the park is expected to fall by 34%
The port of Brisbane has built one additional loading/storage facility on its docks, and it is negotiating with two potential interested parties. Only one of them will get the facility. TransShip also has the option of buying space in the port of Melbourne instead, which costs $30,000 per month and incurs an extra $10,000 per month in transportation costs, as goods from Asia have further to go. CargoHaul can also buy from Brisbane, or it can use its existing facilities elsewhere more intensively, which would cost $15,000 per month in overtime and would lead to an additional loss of $10,000 per month in damaged goods, because of crowding. The port of Brisbane has no other use for the facility. 1. Who gets the facility? 2. If this is core bargaining, what is the highest payment that the port of Brisbane could receive? 3. If this is core bargaining, what is the lowest payment that the port of Brisbane could receive?
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.
I need answer for nmbr 4,5 if 2 not allowed only 5
Barber Brewing is considering investing in one of the following opportunities. Each alternative has a 5-year useful life. Use net present worth to prepare a choice table.