You are about to buy a piece of equipment (machine Alpha) for a project. The initial cost is $500,000 and the annual maintenance costs is $15,000. Another company offers you a second option (Machine Beta) for which the annual maintenance cost is $20,000. What is the maximum price (the initial cost) you would be willing to pay for the second option? Both machines have the same useful life of 11 years and the difference between their performances is negligible. Assume an annual interest rate of 4%.

You are about to buy a piece of equipment (machine Alpha) for a project. The initial cost is $500,000 and the annual maintenance costs is $15,000. Another company offers you a second option (Machine Beta) for which the annual maintenance cost is $20,000. What is the maximum price (the initial cost) you would be willing to pay for the second option? Both machines have the same useful life of 11 years and the difference between their performances is negligible. Assume an annual interest rate of 4%.

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 10E

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Find the Present Worth of each of the option Investment: $10 million Annual Revenue: $103 million Breakdown: a) Ticket sales: $68 millionb) VIP Memberships: $13 million Concession revenues: $22 million Annual Costs: $75 million Breakdown: a) Maintenance: $35 millionb) Salaries: $8 millionc) Concession costs: $6 million d) Event Operations: $10 million e) Overhead: $16 million Major Maintenance Update every 20 years: $20 million GIVEN ASSUMPTIONS While any renovation is taking place, the stadium will be closed and there will be no annual revenue or annual costs It is estimated that all Annual Revenues grow at a rate of 1% per year, and all Annual Costs grow at a rate of 0.8% per year The MARR is 5% The stadium will only be used for 50 years after it is done being upgraded, and at that point it will have no salvage value.
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A company is currently paying its employees$0.56 per mile to drive their own cars on companybusiness. The company is considering supplyingemployees with cars, which would involve purchasing at $25,000 with an estimated three-year life, a netsalvage value of $8,000, taxes and insurance at a costof $1,200 per year, and operating and maintenanceexpenses of $0.30 per mile. If the interest rate is 10%and the company anticipates an employee’s annualtravel to be 30,000 miles, what is the equivalent costper mile (neglecting income taxes)
choose correct option plz. Asap