You just purchased a pin-inserting machine to relieve some bottleneck problems that have been created in manufacturing a PC board. The machine cost $56,000 and has an estimated service life of five years. At that time, the estimated salvage value would be $5,000. The machine is expected to operate 2,500 hours per year. The expected annual operating and maintenance cost would be $6,000. If your firm's interest rate is 15%, what would be the machine cost (owning and operating) per hour?

You just purchased a pin-inserting machine to relieve some bottleneck problems that have been created in manufacturing a PC board. The machine cost $56,000 and has an estimated service life of five years. At that time, the estimated salvage value would be $5,000. The machine is expected to operate 2,500 hours per year. The expected annual operating and maintenance cost would be $6,000. If your firm's interest rate is 15%, what would be the machine cost (owning and operating) per hour?

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 4E

See similar textbooks

Similar questions

A machine tool company is considering a new investment in a punch pressmachine that will cost $100,000 and has an annual maintenance cost of $10,000. There is also an additional overhauling cost of $20,000 for the equipment once every four years. Assuming that this equipment will last 12 years under these conditions, what is the cost of owning and maintaining the punch press at an interest rate of 10%?
A company expects to retire an existing machine at the end of 2024 and will replace it with a new machine for the same task at an estimated cost of P60,035. The old machine is expected to be sold for P5,000 when it is replaced. To provide for the replacement, the company intends to deposit the following amounts in an account earning interest at 8% compounded quarterly: - P20,000 at the end of 2021 - P15,000 at the end of 2022 - P10,000 at the end of 2023 What additional amount is needed at the end of 2024 to purchase the new machine? Draw the Cash flow diagram.
A small manufacturing firm is considering the purchase of a new machine to modernize one of its current production lines. Two types of machines are available on the market. The lives of Machine A and Machine B are four years and six years, respectively, but the firm does not expect to need the service of either machine for more than five years. The machines have the following expected receipts and disbursements: After four years of use, the salvage value for Machine B will be $1,000. The firm always has another option: to lease a machine at $3,000 per year, fully maintained by the leasing company. The lease payment will be made at the beginning of each year.(a) How many decision alternatives are there?(b) Which decision appears to be the best at i = 10%?
A machine is under consideration for investment. The cost of the machine is 28,000. Each year it operates the machine generate a savings of P16,000. Given an effective annual interest rate of 16%. What is the discounted payback period in years, on the investment in the machine? Show complete solution.
Advanced Electrical Insulator Company is considering replacing a brokeninspection machine, which has been used to test the mechanical strength of electrical insulators with a newer and more efficient one. If repaired, the old machine can be used for another five years although the firm does not expect to realize any salvage value from scrapping it in five years. Alternatively, the firm can sell the machine to another firm in the industry now for $5,000. If the machine is kept, it will require an immediate $1,200 overhaul to restore it to operable condition. The overhaul will neither extend the service life originally estimated nor increase the value of the inspection machine. The operating costs are estimated at $2,000 during the first year and are expected to increase by $1,500 per year thereafter. Future market values are expected to decline by $1,000 per year. The new machine costs $10,000 and will have operating costs of $2,000 in the first year, increasing by $800 per year…
Jake’s Shipping, Inc. needs to purchase a new fleet of light trucks for its shipping business. The firm is trying to decide whether to purchase trucks with diesel engines or trucks with gasoline engines. The diesel truck will have a useful life of 12 years, after which it will need to be replaced. The diesel truck costs $110,000 to purchase and its annual maintenance and operation costs will depend on the cost of regular maintenance/repairs and the cost of diesel fuel. In Years 1 through 5, its annual maintenance/repair costs are expected to be $2000 per year. In Years 6 through 12, its annual maintenance/repair costs are expected to be $2500 per year. The firm expects that the diesel truck will use 5,900 gallons of diesel fuel per year (Years 1 through 12) and believes that diesel fuel will cost $2.65 per gallon, on average, during the life of the truck. The gasoline truck only costs $60,000 to purchase but will have a useful life of only 4 years, after which it will need to be…
You are considering a luxury apartment building project that requires an investment of $14,500,000. The building has 60 units. You expect the maintenance cost for the apartment building to be $450,000 the first year and $490,000 the second year. The maintenance cost will continue to increase by $40,000 in subsequent years. The cost to hire a manager for the building is estimated to be $100,000 per year. After five years of operation, the apartment building can be sold for $18,000,000. What is the annual rent per apartment unit that will provide a return on investment of 17%? Assume that the building will remain fully occupied during its five years of operation. The annual rent per apartment unit should be $ ______thousand. (Round to one decimal place.).
Your company is considering a new computer system with an initial cost of $1 million. When implemented, the system will save $300,000 per year in inventory and administration costs. The system has a service life of five years and is classified in the three-year MACRS category. At the end of the fifth year, its residual value was estimated at $50,000. The system has no impact on net working capital. The marginal tax rate is 40 per cent. The required rate of return is 8 per cent.
A large electric utility company has proposed building an $820 million combined cycle, gas-powered plant to replace the electric generation capacity at one of its coal-fired facilities. Develop three other alternatives for replacing this electric generation capacity.
A company expects to retire an existing machine at the end of 2013 and will replace it with a new machine for the same task at an estimated cost of P600,000. The old machine can be sold for P50,000 when it is replaced. To provide for replacement, the company intends to deposit the following amounts in an account earning interest at 8% compounded quarterly: P200,000 at the end of 2010; P150,000 at the end of 2011; P100,000 at the end of 2012. What additional amount is needed at the end of 2013 to purchase the new machine?
A radiology clinic is considering buying a new $700,000 x-ray machine, which will have no salvage value after installation because the cost of removal will be approximately equal to its sales value. Maintenance is estimated at $24,000 per year as long as the machine is owned. After 10 years the x-ray source will be depleted and the machine must be scrapped. Which of the following represents the most economic life of this x-ray machine? Solve a.One year, because it will have no salvage after installation b. Five years, because the maintenance costs are constant c. Ten years, because maintenance costs don't increase d. Cannot be determined from the information given.
You are considering purchasing a new punch press machine. This machine will have an estimated service life of 10 years. The expected after-tax salvage value at the end of service life will be 10% of the purchase cost. Its annual after-tax operating cash flows are estimated to be $60,000. If you can purchase the machine at $308,758, what is the expected rate of return on this investment?(a) 12%(b) 13.6%(c) 15%(d) 17.2%