Your company is interested in investing in anew die casting machine. The machine costs$120,000 and has an expected life of tenyears. This machine is expected to save thecompany $40,000 per year in labor and utilitycosts, but it should incur an additional$15,000 per year in repair costs. Salvage valuefor the equipment is expected to be $20,000.Bonus depreciation under the Tax Reductionand Jobs Act is expected to be 60%. Theequipment is classed under MACRS at aseven-year life. Inflation is expected to be2.5% per year, and the marginal tax rate is24%. Find Net Present Value, Internal Rate ofReturn, and Payback if the MARR is 14%. Isthis a good investment to make?

Capital Budgeting Techniques: The techniques that are used to assess prospective investment…

Answered: Your company is interested in investing…

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 2E

See similar textbooks

Similar questions

Mustang Auto Parts, Inc. is considering one oftwo forklift trucks for its assembly plant.• Truck A costs $15,000 and requires $3,000 annually in operating expenses. It will have a $5,000salvage value at the end of its three-year servicelife.• Truck B costs $20,000, but requires only $2,000annually in operating expenses; its service life isfour years, at which time its expected salvage valuewill be $8,000.The firm’s MARR is 12%. Assuming that the trucksare needed for 12 years and that no significantchanges are expected in the future price and functional capacity of each truck, select the most economical truck on the basis of AE analysis.
3. The annual worth method An office supply company has purchased a light duty delivery truck for $15,000. It is anticipated that the purchase of the truck will increase the company’s revenue by $10,000 annually, whereas the associated operating expenses are expected to be $3,000 per year. The truck’s market value is expected to decrease by $2,500 each year it is in service. If the company plans to keep the truck for only 2 years, what is the annual worth of this investment? The MARR = 18% per year
You are considering purchasing a dump truck.The truck will cost $75,000 and have operating andmaintenance costs that start at $18,000 the first yearand increases by $2,000 per year. Assume that thesalvage value at the end of five years is $22,000 andinterest rate is 12%. What is the equivalent annualcost of owning and operating the truck?
You are offered a device that uses machine learning to improve performance. You expect it to produce monthly cash flows for you as follows: $ 10K, $40K, $70K, $100K. After 4 months, it will be obsolete and useless ( but good news...no disposal cost). Your discount rate is 12% nominal annual. Neglecting tax and depreciation, what would you pay for this device, in $K? (No dollar sign or comma, so $15,500 would be 15.5; $100,000 would be 100.)
uppose that you purchased a HVAC system five years ago for $75, 000. The O&Mcosts are $15, 000 this year and are expected to increase by $1, 000 each year for the next five yearsthen remain the same for the following years.The current salvage value of the system is $15, 000; salvage value after one year is estimated tobe $12, 000; after two years, $11, 000; after three years, $10, 000; after four years, $9, 000; and so on.A new industrial HVAC system is available for purchase at a price of $95, 000, including instal-lation. The market value of the new system will decrease at a rate of 15% each year. The O&Mcosts are expected to be $1, 000 in the first year, and will increase at a rate of 20% each year. Themaximum service life of the new system is 10 years. Assume that your company uses an interestrate of 10% for all project evaluations.(a) Find the remaining economic life of the currently owned asset.(b) What is the economic service life of the new system?(c) Use the…
12.5 A chemical plant is considering installing a new water purification system that costs $21 500. The expected service life of the system is 10 years and the salvage value is computed using the declining-balance method with a depreciation rate of 20 percent. The operating and maintenance costs are esti- mated to be $5 per hour of operation. The expected savings are $10 per operat- ing hour. a. Find the annual worth of the new water purification system if the current operating hours are 1500 per year, on average. The MARR is 10 percent. b. What is the break-even level of operating hours? Construct a graph showing the annual worth for various levels of operating hours. the answers should be a) =4145.74 b)=671 need the solutions please to be clear to understand
eBook Net Present Value Method—Annuity Take a Load Off Hotels is considering the construction of a new hotel for $12,000,000. The expected life of the hotel is 6 years with no residual value. The hotel is expected to earn revenues of $12,400,000 per year. Total expenses, including straight-line depreciation, are expected to be $10,000,000 per year. Take a Load Off's management has set a minimum acceptable rate of return of 12%. a. Determine the equal annual net cash flows from operating the hotel.$fill in the blank 1 b. Calculate the net present value of the new hotel, using the present value factor of an annuity of $1 table below. If required, round to the nearest dollar. If the net present value is negative, enter the amount using a minus sign. Present Value of an Annuity of $1 at Compound Interest Year 6% 10% 12% 15% 20% 1 0.943 0.909 0.893 0.870 0.833 2 1.833 1.736 1.690 1.626 1.528 3 2.673 2.487 2.402 2.283 2.106 4 3.465 3.170 3.037 2.855 2.589 5 4.212 3.791…
11:36 00 VOLTE 76% expert.chegg.com/qna/auth Chegg Hide student question Time Left: 01:51:59 A 8 ✓ Student question A machine has a first cost of $24,000. Its market value declines by 20% annually. The repair costs are covered by the warranty in Year 1, and then they increase $900 per year. The firm's MARR is 12%. Find the minimum EUAC for this machine and its economic life. Skip G Exit Σ Q 2 Submit ... Training
31. The purchase of a motor for P6000 and a generator for P4000 will allow the company to produce its own energy. The configuration can be assembled for P500. The service will operate for 1600 hours per year for 10 years. The maintenance cost is P300 per year, and cost to operate is PO.85 per hour for fuel and related cost. Using straight line depreciation, what is the annual cost for the operation? There is a P400 salvage value for the system at the end of 10 year. a. P2,710 c. P2,630 b. P2,480 d. P2,670
MY NOTES ASK YOUR TEACHER Derive the equation to compute the equivalent annual cost given the capital cost of a highway, such that A (A/P) x P, where A/P is the capital recovery factor. (Use the following as necessary: P for the present worth, i for the annual interest as a decimal number, and n for the number of years.) A= DACCICUCE 43 Compute the equivalent annual cost (in dollars) if the capital cost of a transportation project is $500,000, annual interest 9.8%, and n 30 years. (Enter your answer as a positive value.)
Explain the annual-equivalent worth (AE) criterion?
A reactor of special design un the major item of equipment in a small chemical plant The initial cost of a Completely installed reactor is $ 60000 to the salvage value of the end of the useful life is estimated to be $ 10000. The total annual expenses for the plant are $100000. Excluding depreciation costs for the reactor. How many years of useful life should de estimated for the reactor if 12% of the total annual expenses for the Plant are due to the cost for reactor depreciation?

SEE MORE QUESTIONS

Recommended textbooks for you

Managerial Economics: Applications, Strategies an…

Economics

ISBN:

9781305506381

Author:

James R. McGuigan, R. Charles Moyer, Frederick H.deB. Harris

Publisher:

Cengage Learning