EBK CONTEMPORARY ENGINEERING ECONOMICS
6th Edition
ISBN: 9780134123950
Author: Park
Publisher: PEARSON CUSTOM PUB.(CONSIGNMENT)
expand_more
expand_more
format_list_bulleted
Question
Chapter 7, Problem 54P
To determine
Selection of alternate.
Expert Solution & Answer
Want to see the full answer?
Check out a sample textbook solution
Students have asked these similar questions
CT Corp. is considering two mutually exclusive projects. Both require an initial investment of P120,000 at t = 0. Project X has an expected life of 2 years with after-tax cash inflows of P67,000 and P75,000 at the end of Years 1 and 2, respectively. In addition, Project X can be repeated at the end of Year 2 with no changes in its cash flows. Project Y has an expected life of 4 years with after-tax cash inflows of P38,500 at the end of each of the next 4 years. Each project has a WACC of 8%.
Listed below are the requirements for this data set:
Using the replacement chain approach, how much is the NPV of Project X? (Round the final answer to the nearest peso. Use the "NPV formula" in excel for exact computation. Otherwise, answer based on rounded pv factors will also be accepted.)
Which of the two projects will be more profitable considering the replacement chain approach on the NPV of Project X?
Using the equivalent annuity approach, what is the equivalent annuity of Project Y?…
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…
You are faced with making a decision on a large capital investment proposal. The capital investment amount is $640,000. Estimated annual revenue at the end of each year in the eight year study period is $180,000. The estimated annual year-end expenses are $42,000 starting in year one. These expenses begin decreasing by $4,000 per year at the end of year four and continue decreasing through the end of year eight. Assuming a $20,000 market value at the end of year eight and a MARR = ε =12% per year, answer the following questions.
Using AW, determine whether this proposal is acceptable.
What is the ERR of this proposal? Is it acceptable?
What is the IRR of this proposal? Is it acceptable?
What is the simple and discounted payback period for this proposal?
Chapter 7 Solutions
EBK CONTEMPORARY ENGINEERING ECONOMICS
Ch. 7 - Prob. 1PCh. 7 - Prob. 2PCh. 7 - Prob. 3PCh. 7 - Prob. 4PCh. 7 - Prob. 5PCh. 7 - Prob. 6PCh. 7 - Prob. 7PCh. 7 - Prob. 8PCh. 7 - Prob. 9PCh. 7 - Prob. 10P
Ch. 7 - Prob. 11PCh. 7 - Prob. 12PCh. 7 - Prob. 13PCh. 7 - Prob. 14PCh. 7 - Consider an investment project with the cash flows...Ch. 7 - Consider the investment projects given in Table...Ch. 7 - Prob. 17PCh. 7 - Prob. 18PCh. 7 - Consider the investment projects given in Table...Ch. 7 - Consider the investment projects given in Table...Ch. 7 - Prob. 21PCh. 7 - Prob. 22PCh. 7 - Consider the investment projects given in Table...Ch. 7 - Prob. 24PCh. 7 - Prob. 25PCh. 7 - Prob. 26PCh. 7 - Prob. 27PCh. 7 - Prob. 28PCh. 7 - Prob. 29PCh. 7 - Prob. 30PCh. 7 - Prob. 31PCh. 7 - Prob. 32PCh. 7 - Prob. 33PCh. 7 - Prob. 34PCh. 7 - Prob. 35PCh. 7 - Prob. 36PCh. 7 - Prob. 37PCh. 7 - Prob. 38PCh. 7 - Prob. 39PCh. 7 - Prob. 40PCh. 7 - Prob. 41PCh. 7 - Prob. 42PCh. 7 - Consider the two mutually exclusive investment...Ch. 7 - You are considering two types of automobiles....Ch. 7 - Prob. 45PCh. 7 - Prob. 46PCh. 7 - Fulton National Hospital is reviewing ways of...Ch. 7 - Prob. 48PCh. 7 - Consider the investment projects given in Table...Ch. 7 - Prob. 50PCh. 7 - Prob. 51PCh. 7 - Prob. 52PCh. 7 - Prob. 53PCh. 7 - Prob. 54PCh. 7 - Prob. 55PCh. 7 - Prob. 56PCh. 7 - Prob. 57PCh. 7 - Prob. 1STCh. 7 - Prob. 2STCh. 7 - Prob. 3STCh. 7 - Prob. 4STCh. 7 - Prob. 5ST
Knowledge Booster
Similar questions
- If a project costs $90,000 and is expected to return $24,500 annually, how long does it take to recover the initial investment? What would be the discounted payback period at i=14%? Assume that the cash flows occur continuously throughout the year. The payback period is___________years. (Round to one decimal place.)arrow_forwardConsider 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…arrow_forwardA group of concerned citizens has established a trust fund that pays 6% interest compounded monthly to preserve a historical building by providing annual maintenance funds of $25,000 forever. Compute the capitalized-equivalent amount for these building maintenance expenses.arrow_forward
- You invest in a piece of equipment costing $40,000. The equipment will be used for two years, and it will be worth $15,000 at the end of two years. The machine will be used for 4,000 hours during the first year and 6,000 hours during the second year. The expected savings associated with the use of the piece of equipment will be $28,000 during the first year and $40,000 during the second year. Your interest rate is 10%.(a) What is the capital recovery cost?(b) What is the annual equivalent worth?(c) What is net savings generated per machine-hour?arrow_forwardConsider the following two mutually exclusive investment projects that have unequal service lives: (a) What assumption(s) do you need in order to compare a set of mutually exclusive investments with unequal service lives?(b) With the assumption(s) defined in (a) and using i = 10%, determine which project should be selected.(c) If your analysis period (study period) is just three years, what should bethe salvage value of Project B at the end of year 3 in order to make the twoalternatives economically indifferent?arrow_forwardSuppose we have four mutually exclusive projects, D1, D2, D3, and D4, whose internal rates of return on incremental investment between the projects is given as follows:IRR (Dl - D2) = 27.62%IRR {Dl - D3) = 14.26%IRR {Dl - D4) = 25.24%IRR (D3 - D2) = 30.24%IRR (D2- D4) = 17.34%IRR (D3 - D4) = 16.14%Which project should be selected at MARR 15%?arrow_forward
- A UK manufacturer of particle board furniture is considering investing in a new stamping machine. The machine is expected to have a useful life of five years, after which the machine can be sold as scrap for an estimated £5000. The firm plans to issue bonds to pay for the machine and intends to treat the interest rate on the bonds as the relevant discount rate for evaluating the project. The machine will cost the firm £175,000, all of which must be paid at the beginning of the project. The new stamping machine will reduce costs £50,000 per year, for each year of the machineʹs life. The firm treats all the cost savings as if they occur at year end. Should the firm plan to undertake the investment project, bonds will be issued in approximately three months. The firm has estimated the supply and demand for loanable funds given by these equations:LD = 25,000,000 - 125,000,000r LS = 2,500,000 + 62,500,000r(1) Given the information above, should the firm undertake the investment in the…arrow_forwardConsider the following cash flow data for two competing investment projects: (a) At i = 12%, which of the two projects would be a better choice?{b)At i = 22%, which project is chosen by the NPW rule?arrow_forwardDetermine the capitalized cost of a research laboratory which requires Php 4,500,000 for original construction: Php 110,000 at the end of every year for the first 6 years and then Php 130,000 each year thereafter for operating expenses, and Php 600,000 every 7 years for replacement of equipment with interest at 12% per annum? CC = Php 5,996,693.866 CC = Php 8,123,567.369 CC = Php 7,876,854.896 CC = Php 6,987,693.311arrow_forward
- 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%arrow_forwardConsider the two investments with the following sequences of cash flows Compute for i* for each investment What are the NPW of each alternatives with an MARR of 15% If A & B are mutually exclusive, which project is more economically desirable? (Incremental)arrow_forwardCalculate the capitalized cost of an equipment maintained at a rate of 6% every year for P10,000, replaced every 3years for P25,000 at the same rate, and bought for P110,500. Please solve using economics formula.arrow_forward
arrow_back_ios
SEE MORE QUESTIONS
arrow_forward_ios
Recommended textbooks for you
Managerial Economics: Applications, Strategies an...EconomicsISBN:9781305506381Author:James R. McGuigan, R. Charles Moyer, Frederick H.deB. HarrisPublisher:Cengage Learning
Managerial Economics: Applications, Strategies an...
Economics
ISBN:9781305506381
Author:James R. McGuigan, R. Charles Moyer, Frederick H.deB. Harris
Publisher:Cengage Learning