EBK ENGINEERING ECONOMY
EBK ENGINEERING ECONOMY
8th Edition
ISBN: 8220103675437
Author: Blank
Publisher: YUZU
Question
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Chapter 17, Problem 60P

(a):

To determine

Calculate the annual worth.

(a):

Expert Solution
Check Mark

Explanation of Solution

Time period is denoted by ‘n’ and after tax return is denoted by ‘i’. The remaining time period is denoted by ‘rn’. The annual value (AW) of defender can be calculated as follows:

AWDefender=(Market value(i(1+i)rn(1+i)rn1)+Salvage value(i(1+i)rn1)OE+((OE+First costSalvage valuen)×Effective tax rate))=(15,000(0.06(1+0.06)5(1+0.06)51)+2,000(0.06(1+0.06)51)1,200+((1,200+28,0002,00010)×0.06))=(15,000(0.2374)+2,000(0.1774)1,200+228)=4,178

The annual worth of the defender is -$4,178.

The annual worth (AW) of challenger can be calculated as follows:

AWChallenger=((First costChallenger(i(1+i)n(1+i)n1))+SalvageChallenger(i(1+i)n1)OEChallenger+(OEChallenger+First costChallengerSalvageChallengern)×Effective tax rate)=((15,000)(0.06(1+0.06)8(1+0.06)81)+3,000(0.1(1+0.06)81)1,500+(1,500+15,0003,0008)×0.06)=((15,000)(0.16104)+3,000(0.10104)1,500+180)=3,432

The annual worth of the challenger is -$3,432. Since the annual worth of the challenger is greater than the defender, select the challenger.

(b):

To determine

Calculate the annual worth through spreadsheet.

(b):

Expert Solution
Check Mark

Explanation of Solution

The annual worth of the defender and challenger can be calculated using spreadsheet as follows:

EBK ENGINEERING ECONOMY, Chapter 17, Problem 60P

(c):

To determine

Calculate the new annual worth.

(c):

Expert Solution
Check Mark

Explanation of Solution

The annual value (AW) of defender can be calculated as follows:

AWDefender=(Market value(i(1+i)rn(1+i)rn1)+Salvage value(i(1+i)rn1)OE)=(15,000(0.12(1+0.12)5(1+0.12)51)+2,000(0.12(1+0.12)51)1,200)=(15,000(0.2774)+2,000(0.1574)1,200)=5,046

The annual worth of the defender is -$5,046.

The spreadsheet function to calculate the annual worth of the defender is given below:

= -PMT(12%,5,-15000,2000) – 1200

The above function gives the value of -$5046.

The annual worth (AW) of challenger can be calculated as follows:

AWChallenger=((First costChallenger(i(1+i)n(1+i)n1))+SalvageChallenger(i(1+i)n1)OEChallenger)=((15,000)(0.12(1+0.12)8(1+0.12)81)+3,000(0.1(1+0.12)81)1,500)=((15,000)(0.16104)+3,000(0.10104)1,500)=4,276

The annual worth of the challenger is -$4,276. Since the annual worth of the challenger is greater than the defender, select the challenger.

The spreadsheet function to calculate the annual worth of the defender is given below:

= -PMT(12%,8,-15000,3000) – 1500

The above function gives the value of -$4,276.

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Chapter 17 Solutions

EBK ENGINEERING ECONOMY

Ch. 17 - Prob. 11PCh. 17 - Prob. 12PCh. 17 - Prob. 13PCh. 17 - Prob. 14PCh. 17 - Prob. 15PCh. 17 - Prob. 16PCh. 17 - Prob. 17PCh. 17 - Prob. 18PCh. 17 - Prob. 19PCh. 17 - Prob. 20PCh. 17 - Prob. 21PCh. 17 - Prob. 22PCh. 17 - Prob. 23PCh. 17 - Prob. 24PCh. 17 - Prob. 25PCh. 17 - Prob. 26PCh. 17 - Prob. 27PCh. 17 - Prob. 28PCh. 17 - Prob. 29PCh. 17 - Prob. 30PCh. 17 - Prob. 31PCh. 17 - Prob. 32PCh. 17 - Prob. 33PCh. 17 - Prob. 34PCh. 17 - Prob. 35PCh. 17 - Prob. 36PCh. 17 - Prob. 37PCh. 17 - Prob. 38PCh. 17 - Prob. 39PCh. 17 - Prob. 40PCh. 17 - Prob. 41PCh. 17 - Prob. 42PCh. 17 - Prob. 43PCh. 17 - Prob. 44PCh. 17 - Prob. 45PCh. 17 - Prob. 46PCh. 17 - Prob. 47PCh. 17 - Prob. 48PCh. 17 - Prob. 49PCh. 17 - Prob. 50PCh. 17 - Prob. 51PCh. 17 - Prob. 52PCh. 17 - Prob. 53PCh. 17 - Prob. 54PCh. 17 - Prob. 55PCh. 17 - Prob. 56PCh. 17 - Prob. 57PCh. 17 - Prob. 58PCh. 17 - Prob. 59PCh. 17 - Prob. 60PCh. 17 - Prob. 61PCh. 17 - Prob. 62PCh. 17 - Prob. 63PCh. 17 - Prob. 64PCh. 17 - Prob. 65PCh. 17 - Prob. 66PCh. 17 - Prob. 67PCh. 17 - Prob. 68PCh. 17 - Prob. 69PCh. 17 - Prob. 70PCh. 17 - Prob. 71PCh. 17 - Prob. 72PCh. 17 - Prob. 73PCh. 17 - Prob. 74PCh. 17 - Prob. 75PCh. 17 - Prob. 76APQCh. 17 - Prob. 77APQCh. 17 - Prob. 78APQCh. 17 - Prob. 79APQCh. 17 - Prob. 80APQCh. 17 - Prob. 81APQCh. 17 - Prob. 82APQCh. 17 - Prob. 83APQCh. 17 - Prob. 84APQCh. 17 - Prob. 85APQCh. 17 - Prob. 86APQCh. 17 - Prob. 87APQCh. 17 - Prob. 88APQCh. 17 - Prob. 1CSCh. 17 - Prob. 2CSCh. 17 - Prob. 3CSCh. 17 - Prob. 4CS
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