Engineering Economy, Student Value Edition (17th Edition)
Engineering Economy, Student Value Edition (17th Edition)
17th Edition
ISBN: 9780134838137
Author: William G. Sullivan, Elin M. Wicks, C. Patrick Koelling
Publisher: PEARSON
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Chapter 9, Problem 6P
To determine

Calculate the equivalent annual value.

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Kappa Holdings is looking at a new system with an installed cost of $740,000. This cost will be depreciated straight-line to zero over the project's 7-year life, at the end of which the system can be salvaged for $102,000. The system will save the firm $217,000 per year in pretax operating costs, and the system requires an initial investment in net working capital of $69,000, which will be returned at the end of the project. If the tax rate is 22 percent and the discount rate is 9 percent, what is the NPV of this project? (Do not round intermediate calculations and round your answer to 2 decimal places, e.g., 32.16.) NPV
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Company X is looking to expand their operations to add a second product line capable of producing 1.25 Million units per year. The total estimated investment cost for the new line is $25 Million, with a salvage value equal to 20% of the purchase price at the end of the 6-year project life.Β The annual expected sales volume is shown below, in thousands of units:Β  Β  Β YearΒ  Β  Β  Β  Β 1Β  Β  Β  Β  Β  Β  Β  Β 2Β  Β  Β  Β  Β  Β  Β  3Β  Β  Β  Β  Β  Β  Β 4Β  Β  Β  Β  Β  Β  Β  5Β  Β  Β  Β  Β  Β  Β  Β  6VolumeΒ  Β  525,000Β  Β 600,000Β  Β 725,000Β  Β 800,000Β  Β 925,000Β  Β 1,000,000 The average selling price is fixed for the project life at $125 per unit. Variable costs (per unit) include $35 for materials, $20 for manufacturing, and $18 for labor. There are additional fixed operating and maintenance costs totaling $14.25 Million per year. The company’s working capital calculations are based on a 2.5-month supply of raw materials and 1.5 months of combined inventory (WIP and finished goods) that it maintains to balance overall industry demand. FX…
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