Contemporary Engineering Economics (6th Edition)
6th Edition
ISBN: 9780134105598
Author: Chan S. Park
Publisher: PEARSON
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Question
Chapter 5, Problem 6P
(a):
To determine
Calculate the time period to recover the investment.
(b):
To determine
Calculate the new time period to recover the investment.
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Students have asked these similar questions
a) Calculate the discounted payback period for the project.
b) Calculate the Net Present Value of the project.
c) Mr. Mokhodu, the recently hired manager for this potential project is not convinced that using the IRR is sufficient to assess the project’s viability. Calculate the Modified Internal Rate of Return (MIRR) that should be used.
A Company is contemplating the purchase of a new milling machine. The purchase price of the new machine is $60,000 and its annual operating cost $2,675.40. The machine has a life of seven years with no salvage value, and it is expected to generate $18,000 in revenue in each year of its life. What is the rate of return of the investment in this machine if the interest rate is 8% per year?
Select one:
a. 10.18%
b. 14.33%
c. 12.66%
d. 15.25%
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XYZ Gadget Company is currently considering which investment projects it should undertake. The following list of projects along with the
estimated rate of return of each project is presented to the executive management team:
Project A (8.5%)
Project B (7%)
Project C (6%)
Project D (11%)
Project E (5.5%)
The current interest rate in the loanable funds market is 5%. However, if an increase in government borrowing pushes the interest rate to
7.5%, we would expect the company to discontinue investment plans for all but,
of its planned projects.
Chapter 5 Solutions
Contemporary Engineering Economics (6th Edition)
Ch. 5 - Prob. 1PCh. 5 - Prob. 2PCh. 5 - If a project costs 100,000 and is expected to...Ch. 5 - Refer to Problem 5.2, and answer the following...Ch. 5 - Prob. 5PCh. 5 - Prob. 6PCh. 5 - Prob. 7PCh. 5 - Prob. 8PCh. 5 - Consider the cash flows from an investment...Ch. 5 - Prob. 10P
Ch. 5 - Prob. 11PCh. 5 - Prob. 12PCh. 5 - Prob. 13PCh. 5 - Prob. 14PCh. 5 - Prob. 15PCh. 5 - Prob. 16PCh. 5 - Prob. 17PCh. 5 - Prob. 18PCh. 5 - Consider the project balances in Table P5.19 for a...Ch. 5 - Your RD group has developed and tested a computer...Ch. 5 - Prob. 21PCh. 5 - Prob. 22PCh. 5 - Prob. 23PCh. 5 - Prob. 24PCh. 5 - Prob. 25PCh. 5 - Prob. 26PCh. 5 - Prob. 27PCh. 5 - Prob. 28PCh. 5 - Prob. 29PCh. 5 - Prob. 30PCh. 5 - Prob. 31PCh. 5 - Prob. 32PCh. 5 - Geo-Star Manufacturing Company is considering a...Ch. 5 - Prob. 34PCh. 5 - Prob. 35PCh. 5 - Prob. 36PCh. 5 - Prob. 37PCh. 5 - Prob. 38PCh. 5 - Prob. 39PCh. 5 - Prob. 40PCh. 5 - Prob. 41PCh. 5 - Prob. 42PCh. 5 - Two methods of carrying away surface runoff water...Ch. 5 - Prob. 44PCh. 5 - Prob. 45PCh. 5 - Prob. 46PCh. 5 - Prob. 47PCh. 5 - Prob. 48PCh. 5 - Prob. 49PCh. 5 - Prob. 50PCh. 5 - Prob. 51PCh. 5 - Prob. 52PCh. 5 - Prob. 53PCh. 5 - Prob. 54PCh. 5 - Prob. 55PCh. 5 - Prob. 56PCh. 5 - Prob. 57PCh. 5 - Prob. 58PCh. 5 - Prob. 59PCh. 5 - Prob. 1STCh. 5 - Prob. 2ST
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Similar questions
- You are considering the following project: It pays you $2,500 at the end of the first year, costs $8,500 by the end of the second year and brings $6,800 a year after. What is the project's internal rate of return(s), exact external rate of return and the approximate external rate of return it current MARR is 14%?arrow_forwardA project has a service of five years with the initial investment outlay of$180,000. If the discounted payback period occurs at the end of project service life (say five years) at an interest rate of 8%, what can you say about the NFW of the project?arrow_forwardAnother method to deal with the unequal life problem of projects is the equivalent annual annuity (EAA) method. In this method the annual cash flows under the alternative investments are converted into a constant cash flow stream whose NPV is equivalent to the NPV of the comparative project's Initial stream. Consider the case of Three Waters Boatbuilders: Three Waters Boatbuilders is considering a three-year project that has a weighted average cost of capital of 10% and a net present value (NPV) of $85,647. Three Waters Boatbuilders can replicate this project indefinitely. The equivalent annual annuity (EAA) for this project is The EAA approach to evaluating projects with unequal lives does not do a good job of taking inflation into account.arrow_forward
- Projects A and B are mutually exclusive. The minimum attractive rate of return (MARR) is 12%. Using rate of return analysis, which project should be selected? If the image fails to load here, go to https://www.dropbox.com/s/ld6wctqieu8jgwp/ROR.jpg >> Year 0 A B - $750 - $1,150 B-A - $400 123 $200 $300 $100 $200 $350 $150 $200 $400 $200 4 $600 $700 $100 ROR 17.68% 16.44% 13.69% Project A Project B Both Project A and B Select none of the project. Insufficient information to make a decision.arrow_forwardQuestion 4 Consider a proposal to enhance production of tortillas en a taqueria. The new machine is estimated to cost $30 million and will incur an additional $1 million per year in maintenance costs. The machine will produce annual savings of $6 million each year. The Minimum acceptable rate of return (MARR) is 11% per year, and the study period is five years at which time the machine will be obsolete (worthless). What is the maximum (minimum) value of maintenance cost that reverse your decision? Write 4 decimalsarrow_forwardAn aircraft hangar requires a new high-efficiency HVAC system for environmental control and reducing heating and cooling expenses. The cost of the HVAC system is $5.0 million, and the annual savings are expected to be $400,000. The useful life of the HVAC system is 20 years, and its residual value is zero. a) What is the simple payback period? b) What is the internal rate of return? (Note: You can use the tables in the book or Excel to find the IRR, but in either case show work and/or cut & paste a spreadsheet. If using the tables an approximate answer will be acceptable)arrow_forward
- Anne made an investment of P8,000,000.00 and earns a yearly gross income of P5,000,000.00. The projected annual costs for his operation are as follows: labor costs of P1,000,000.00; material costs of P1,500,000.00; and opportunity costs of P1,200,000.00. If his company has a 20% Rate of Return goal, decide if this project is in line with Anne's objective or not.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_forwardConsider the following two mutually exclusive projects being considered by an agency. The agency's MARR is 4% per year and the projects have a service life of 5 years. Answer the following questions. Project 1 $14,600 $3,901 Present Worth (PW) $2,767 Initial cost Annual revenues b. Calculate the IRR of each alternative (use the trial-and-error method) The IRR of Project 1 is% (Round to the nearest one decimal place) The IRR of Project 2 is % (Round to the nearest one decimal place) Project 2 $22,100 $5,638 $2,999 c. Perform the incremental IRR analysis to determine the project that is more economical: Incremental IRR =% (Round to the nearest one decimal place);arrow_forward
- Two machines are being considered for purchase. If the MARR (for this problem, also the minimum required interest rate) is 10%, which machine should be bought?arrow_forwardThe company uses a 10% discount rate and the total-cost approach to capital budgeting analysis. The working capital required under the new system would be released for use elsewhere at the conclusion of the project. Both alternatives are expected to have a useful life of ten years.1. The net present value of the overhaul alternative (rounded to the nearest hundred pesos) is: P(750,300) P(987,400) P(725,800) P(975,800) 2. The net present value of the new system alternative (rounded to the nearest hundred pesos) is: P(552,900) P(758,400) P(862,900) P(987,400)arrow_forwardA new baseball stadium is being considered to be built in a metropolitan area by High Tech, Inc., at a cost of $50M. It is estimated that the annual maintenance cost will be $100K. The construction company recommends a major renovation every 50 years at a cost of $10M. If the corporation wants to set up a trust fund to pay for the stadium, its maintenance, and periodic renovations for an undefined number of years to come, what amount should be invested in the trust fund if the fun earns an annual interest rate of 6%? Group of answer choices $52,223,000 $60,566,667 $60,666,667 $73,500,429 $58,600,000arrow_forward
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