Construction Accounting And Financial Management (4th Edition)
4th Edition
ISBN: 9780135232873
Author: Steven J. Peterson MBA PE
Publisher: PEARSON
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Question
Chapter 17, Problem 39P
To determine
Compute the payback period with interest and state that whether the company should buy the dump truck.
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You are considering purchasing a dump truck. The truck will cost $75,000 and have operating and maintenance costs that start at $18,000 the first year and increases by $2,000 per year. Assume that the salvage value at the end of five years is $22,000 and interest rate is 15%. What is the annual operation and maintenance costs of owning this vehicle?
You are considering purchasing a dump truck. The truck will cost $45,000 and have operating and maintenance costs that start at $15,000 in the first year and increase by $2,000 per year thereafter. Assume that the salvage value at the end of five years is $9,000 and the interest rate is 12%. Determine the equivalent annual cost of owning and operating the truck.
What is the highest price they can pay on the new vehicle if they can afford a down payment of $4,000?Assume they finance their purchase for 48 months at 7.5%?
Chapter 17 Solutions
Construction Accounting And Financial Management (4th Edition)
Ch. 17 - What is the do nothing alternative?Ch. 17 - Why is it important to compare all possible...Ch. 17 - What is a sunk cost? How should sunk costs be...Ch. 17 - Prob. 4DQCh. 17 - Prob. 5DQCh. 17 - What is a study period? Why must all of the...Ch. 17 - Why do the NPV, the future worth, and the annual...Ch. 17 - Why must you use mutually exclusive alternatives...Ch. 17 - Why would one use the capital recovery with return...Ch. 17 - What are the weaknesses of the payback period...
Ch. 17 - What types of investments does the payback period...Ch. 17 - What is the advantage of using the project balance...Ch. 17 - A manager has up to 190.000 available to invest in...Ch. 17 - A manager has up to 200,000 available to invest in...Ch. 17 - Determine the MARR for a company that can borrow...Ch. 17 - Determine the MARR for a company that can invest...Ch. 17 - Your company is looking at purchasing a dump truck...Ch. 17 - Your company is looking at purchasing a loader at...Ch. 17 - Your company needs to purchase a new track hoe and...Ch. 17 - Your company needs to purchase a new track hoe and...Ch. 17 - Your company needs to purchase a track hoe and has...Ch. 17 - Your company needs to purchase a truck and has...Ch. 17 - Prob. 23PCh. 17 - Determine the incremental net present value for...Ch. 17 - Determine the future worth for Problem 17. Should...Ch. 17 - Determine the future worth for Problem 18. Should...Ch. 17 - Prob. 27PCh. 17 - Determine the annual equivalent for Problem 18....Ch. 17 - Determine the rate of return for Problem 17....Ch. 17 - Determine the rate of return for Problem 18....Ch. 17 - Your company has 100,000 to invest and has...Ch. 17 - Your company has 200,000 to invest and has...Ch. 17 - Determine the incremental rate of return for...Ch. 17 - Prob. 34PCh. 17 - Your company has purchased a new track hoe for...Ch. 17 - Your company has purchased a new excavator for...Ch. 17 - Determine the payback period without interest for...Ch. 17 - Determine the payback period without interest for...Ch. 17 - Prob. 39PCh. 17 - Determine the payback period with interest for...Ch. 17 - Draw a project balance chart for Problem 17.Ch. 17 - Draw a project balance chart for Problem 18.
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Similar questions
- A new forklift truck will require an investment of $30,000 and is expected to have year-end MVs and annual expenses as shown in columns 2 and 5, respectively, of the shown Table . If the before-tax MARR is 10% per year, how long should the asset be retained in service? Solve by hand and by spreadsheet. By how much would the MARR have to change before the economic life decreases by one year? How about to increase the economic life by one year?arrow_forwardDefine the symbols involved when a construction company wants to know how much money it can spend 3 years from now to purchase a new truck in lieu of spending $50,000 now. The compound interest rate is 15% per year.arrow_forwardAn existing robot can be kept if $2,000 is spent now to upgrade it for future service requirements. Alternatively, the company can purchase a new robot to replace the old robot. The estimates shown in the Table have been developed for both the defender and the challenger. The company’s before-tax MARR is 20% per year. Based on this information, should the existing robot be replaced right now? Assume the robot will be needed for an indefinite period of time.arrow_forward
- A bulldozer can be purchased for $380,000 and used for 6 years, when its salvage value is 15% of the first cost. Alternatively, it can be leased for $60,000 a year. (Remember that lease payments occur at the start of the year.) The firm’s interest rate is 12%. (a) What is the interest rate for buying versus leasing? Which is the better choice? (b) If the firm will receive $65,000 more each year than it spends on operating and maintenance costs, should the firm obtain the bulldozer? What is the rate of return for the bulldozer using the best financing plan?arrow_forwardIn your company-owned business, you are contemplating to purchase a new machine for $100,000 that will produce a net revenue , after deducting operating expenses, of $10,000 per year. If you are planning to keep the machine running for 4 years, what must the market or resale value be at the end of 4 years to justify the investment? It is a must that you make a 15% annual return on your investment.arrow_forwardIn order to purchase another truck, Beatty Transport recently obtained a $125,000 loan for five years at 7.8% compounded semiannually. a. What are the monthly payments on the loan? b. The company is considering selling the truck at the end of 3 years and paying off the balance of the loan. What should the monthly payments be so that the value of loan at the end of the first 3 years is $55,000?arrow_forward
- Some equipment is needed for a construction project. It can be leased for $150,000 annually, or it can be purchased for $900,000 at the beginning and sold for $225,000 at the end of 3 years. What is the rate of return for owning the equipment rather than leasing it?arrow_forwardA new forklift truck will require an investment of $30,000 and is expected to have year-end MVs and annual expenses as shown in columns 2 and 5, respectively, as shown in the Table. If the before-tax MARR is 10% per year, how long should the asset be retained in service? Solve by hand and by spreadsheet.arrow_forwardAs an alternative to the used automobile , the student can purchase a new “utility” model for $13,600 with a 3-year warranty. First-year maintenance cost is expected to be $50 and the maintenance cost will increase by $50 per year thereafter. Operation costs for this new automobile are expected to be $960 for each year of use and its salvage value decreases by 20% per year.What is the economic advantage of the new automobile without interest; with interest at 10%?arrow_forward
- Fabco, Inc., is considering purchasing flow valves that will reduce annual operating costs by $10,000 per year for the next 12 years. Fabco’s MARR is 7%/year. Using an internal rate of return approach, determine the maximum amount Fabco should be willing to pay for the valves. $arrow_forwardIt is estimated that the maintenance cost on a new car will be $350 the first year. Each subsequent year, this cost is expected to increase by $250. How much would you need to set aside when you bought a new car to pay all future maintenance costs if you planned to keep the vehicle for 15 years? Assume interest is 6% per year.arrow_forwardSuppose that you purchased industrial equipment that requires special software to run the machine. The licensing agreement calls for a $20,000 payment immediately and $10,000 every other year to renew and get any update on the software. If the machine is to be kept for 48 years, determine the total equivalent cost in present worth at an interest rate of 10%.arrow_forward
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