Tony's Pizzaria, owned by my cousin Tony (True!), is looking for a new pizza oven (Not really). Two alternatives are: Model 1: Cost $30,000, estimated life 10 years, Salvage value $4,000, annual income $9,400, annual expenses $5,000 Model 2: Cost $40,000, estimated life 5 years, Salvage $2000, annual income $13,000, annual expenses $ $3,000 Find the discounted payback period for each if MARR is 6%. If their criterion is minimum DPBP, which should they buy?

Tony's Pizzaria, owned by my cousin Tony (True!), is looking for a new pizza oven (Not really). Two alternatives are: Model 1: Cost $30,000, estimated life 10 years, Salvage value $4,000, annual income $9,400, annual expenses $5,000 Model 2: Cost $40,000, estimated life 5 years, Salvage $2000, annual income $13,000, annual expenses $ $3,000 Find the discounted payback period for each if MARR is 6%. If their criterion is minimum DPBP, which should they buy?

Essentials Of Investments

11th Edition

ISBN:9781260013924

Author:Bodie, Zvi, Kane, Alex, MARCUS, Alan J.

Publisher:Bodie, Zvi, Kane, Alex, MARCUS, Alan J.

Chapter1: Investments: Background And Issues

Section: Chapter Questions

Problem 1PS

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Kaleo has made up his mind—he wants a pool in the family’s backyard! He figures his kids and spouse will be thrilled. However, to cover the cost of the pool, they’ll have to pack up and live away from home for a few weeks during the summer to rent their home to vacationers. He crunched the numbers based on the following estimates. 1. Cost of pool/installation $50,000 2. Life of the pool (no salvage value) 20 years 3. Annual net cash inflows from renting (net of cash expenses for renting and pool maintenance) $6,500 4. Tax rate 23% 5. Average rate of return 8% Kaleo’s daughter, Sarah, found the above information written on a sheet of paper in his office, along with the following notes. “This is a no-brainer! We’ll recover the cost of this pool in just 7 years, even though we plan to live here until we’re old and gray, or at least as long as the pool hangs on. If we can rent our house out for just 3 weeks each year, it’ll be almost pure profit that we can put toward paying off…
You need a new oven for your bakery. Your current oven is worn out so you are trying to decide which one of two ovens to buy as a replacement. Whichever oven you purchase will be replaced after its useful life. Oven A costs $25,000 and costs $3,000 a year to operate over an 8-year life. Oven B costs $20,000 and costs $4,500 a year to operate over a 6-year life. Given this information, which one of the following statements is correct if the applicable discount rate is 10 percent? A) The equivalent annual cost of oven A is -$7,481. B) The equivalent annual cost of oven B is -$8,209. C) Oven A lowers the annual cost by $1,406 as compared to oven B. D) Oven B lowers the annual cost by $1,598 as compared to oven A.
Ronald McDonald decides to install a fuel storage system for his farm that will save him an estimated 6.5 cents/gallon on his fuel cost. He uses an estimated 20,000 gallons/year on his farm. Initial cost of the system is $10,000, and the annual maintenance the first year is $25, increasing by $25 each year thereafter. After a period of 10 years the estimated salvage is $3000. If money is worth 12%, is the new system a wise investment?
Zootopia farms is consider replacing one off its tractors. The tractor in question was purchased 2 years ago at a cost of $47,000. The time of purchase the tractor was expected to have a 5000 dollar salvage value at the end of is six year life. The tractor has a current book value of 33,000. If sold today the company could get 26000 for the tractor. It costs $29,000 per year to operate the existing tractor. The new tractor would cost $50,000 and would only cost 21,000 to operate every year. The new tractor would depreciate on a straight-line basis over its 4 year useful life to its expected salvage value of $7,000. The company’s required rate of return is 14 percent. Ignore income tax Answer the fallowing 1) Should the company replace the tractor in question support your answer with NPV calculation 2) provide 2 nonfinancial options that the management of Zootopia must consider in making the decision to replace the tractor.
Oliver Douglas decides to install a fuel storage system for his farm that will save him an estimated 6.5 cents/gallon on his fuel cost. Initial cost of the system is $10,000, and the annual maintenance is $25 the first year, increasing by $25 each year thereafter. After a period of 10 years the estimated salvage is $3000. If money is worth 12%, what is the breakeven quantity of fuel?
A university bought computers years ago worth $50,000. Its annual operating cost is $4,689. If it is going to be upgraded to have a new life of 4 more years and if is sold today, its price is $38,057. Its salvage value is $500. Alongside with this, it will buy new medium-type computer at a cost of $46,031, salvage cost of $300 and its annual operating cost is 6,634. The medium-type computers are expected to last for 5 years. This is to be considered the 1st Option. The 2nd Option is to buy larger computer, which has a cost of P4.2M, P1.12M salvage value, and P500,000 annual operating cost per year. It would last 5 years. The last option is to lease a computer. The computer has annual payment of P1.4M per year and initial payment of P100,000. It would last 4 years. Assume that the interest rate is 12% per year. What is the Annual Equivalent Cost of the 1st Option?
DelRay Foods must purchase a new gumdrop machine. Two machines are available. Machine 7745 has a first cost of $10,000, an estimated life of 10 years, a salvage value of $1,000, and annual operating costs estimated at $0.01 per 1,000 gumdrops. Machine A37Y has a first cost of $8,000, a life of 10 years, and no salvage value. Its annual operating costs will be $300 regardless of the number of gumdrops produced. MARR is 6%/year, and 30 million gumdrops are produced each year. Solve, a. What is the annual worth of each machine? b. What is the decision rule for determining the preferred machine based on annual worth ranking? c. Which machine should be recommended?
DelRay Foods must purchase a new gumdrop machine. Two machines are available. Machine 7745 has a first cost of $10,000, an estimated life of 10 years, a salvage value of $1,000, and annual operating costs estimated at $0.01 per 1,000 gumdrops. Machine A37Y has a first cost of $8,000, a life of 10 years, and no salvage value. Its annual operating costs will be $300 regardless of the number of gumdrops produced. MARR is 6%/yr, and 30 million gumdrops are produced each year. Based on an internal rate of return analysis, which machine (if either) should be recommended?
DelRay Foods must purchase a new gumdrop machine. Two machines are available. Machine 7745 has a first cost of $10,000, an estimated life of 10 years, a salvage value of $1,000, and annual operating costs estimated at $0.01 per 1,000 gumdrops. Machine A37Y has a first cost of $8,000, a life of 10 years, and no salvage value. Its annual operating costs will be $300 regardless of the number of gumdrops produced. MARR is 6%/year, and 30 million gumdrops are produced each year. Solve, a. What is the present worth of each machine? b. What is the decision rule for determining the preferred machine based on present worth ranking? c. Which machine should be recommended?
You are running a small machine shop where you need to replace a worn-out sanding machine. Two different models have been proposed:• Model A is semiautomated, requires an initial investment of $150,000, and has an annual operating cost of $55,000 for each of three years, at which time it will have to be replaced. The expected salvage value of the machine is just $15,000.• Model B is an automated machine with a five-year life and requires an initial investment of $230,000 with an estimated salvage value of $35,000. Expected annual operating and maintenance cost of the B machine is $30,000. Suppose that the current mode of operation is expected to continue for an indefinite period. You also think that these two models will be available in the future without significant changes in price and operating costs. At MARR = 15%, which model should you select? Apply the annual-equivalence approach to select the most economical machine.
A company is considering replacing a machine (defender) that was boughtsix years ago for $50,000 and has now malfunctioned. The machine can be repaired toextend its life by Öve more years. If repaired, the machine will require an operating costof $10,000 per year. If it is replaced, the new machine (challenger) will cost $44,000, willlast for six years, and will have operating expenses of $5,000 per year. The challengerwill have zero salvage value at the end of its six year life. The malfunctioned defendercan be sold at a current market value of $15,000. If MARR is 12% per year, what isthe maximum amount that the company should spend to repair the existing machineinstead of switching to the challenger? Use the outsider viewpoint method. (Note: Allvalues are before taxes, not tax calculations are necessary). please dont use excell
DelRay Foods must purchase a new gumdrop machine. Two machines are available. Machine 7745 has a first cost of $10,000, an estimated life of 10 years, a salvage value of $1,000, and annual operating costs estimated at $0.01 per 1,000 gumdrops. Machine A37Y has a first cost of $9,000, a life of 10 years, and no salvage value. Its annual operating costs will be $250 regardless of the number of gumdrops produced. MARR is 8% per year, and 15 million gumdrops are produced each year. Which machine should be recommended? Machine A37Y Machine 7745 Both Machines Do nothing

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