1) Because of tighter safety regulations, an improved air filtration system must be installed at a plant that produces ahighly corrosive chemical compound. The capital investment in the system is $260,000 in present day dollars. Thesystem has a useful life of 10 years and is in the MACRS (GDS) five-year property class. It is expected that the MarketValue of the system at the end of its 10-year life will be $50,000 in present-day dollars. Annual expenses, estimated inpresent-day dollars, are expected to be $6,000 per year, not including an annual property tax of 4% of the investmentcost (does not inflate). Assume that the plant has a remaining life of 20 years and that replacement costs, annualexpenses, and Market Value increase at 6% per year. If the effective income tax rate is 40%, setup a table to determinethe ATCF for the system over a 20-year period. The after-tax market rate of return desired on investment capital is 12%per year (im). What is the PW of costs of this system after income taxes have been taken into account? Develop the real-dollar ATCF. (Assume that the annual general price inflation rate is 4.5% over the 20-year period.)

explanation:1. Calculate Present Value (PV) Factor:• Use the formula for present value factor: PV…

Answered: 1) Because of tighter safety…

ENGR.ECONOMIC ANALYSIS

14th Edition

ISBN:9780190931919

Author:NEWNAN

Publisher:NEWNAN

Chapter1: Making Economics Decisions

Section: Chapter Questions

Problem 1QTC

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A piece of new equipment has been proposed by engineers to increase the productivity of a certain manual welding operation. The investment cost is $25,000, and the equipment will have a market value of $5,000 at the end of a study period of seven years. Increased productivity attributable to the equipment will amount to $8,000 per year after extra operating costs have been subtracted from the revenue generated by the additional production. 1-1 If the firm's MARR is 20% per year, is this proposal a sound one? Use the PW method.
The present price (year 0) of kerosene is $4.30 per gallon, and its cost is expected to increase by 10% per year. (At the end of year 1, kerosene will cost $4.73 per gallon.) Mr. Garcia uses about 800 gallons of kerosene for space heating during a winter season. He has an opportunity to buy a storage tank for $600, and at the end of four years, he can sell the storage tank for $100. The tank has a capacity to supply four years of Mr. Garcia's heating needs. So, he can buy four years' worth of kerosene at its present price ($4.30), or he can invest his money elsewhere at 6% interest. Should he purchase the storage tank? Assume that kerosene purchased on a pay-as-you-go basis is paid for at the end of the year. (However, kerosene purchased for the storage tank is purchased now.)
Answer is -$3, 085,828 ( please show your work)
A water supply system is being considered for a small district. The system requires an initial investment of P8M, will operate for 15 years and will be sold for P0.4M after that time. Annual operations and maintenance costs is expected to be P48 000.00 for the first year and is expected to increase by P12 000.00 each year thereafter. Determine the annual cost of this project using i= 11%. (Ans. - P1,210,425.43)-PLEASE USE AN ACTUAL FORMULA NOT EXCEL
A bridge is to be constructed now as part of a new road. Engineers have determined that current traffic volume on the new road will justify a two-lane road and a bridge at the present time. Because of the uncertainty regarding future traffic, the time at which the additional two lanes will be required is currently being studied. Two alternatives are being considered. Alternative 1 - One-stage construction: Build a four lane bridge right now for $397,000. Alternative 2 - Two-stage construction: Start with a two-lane bridge now for $190,000 and widen to four lanes later when traffic justifies. The future cost of widening the bridge to four-lanes at that time will be $190,000 plus an extra $23,000 for every year that widening is delayed. For example, if future widening is done at the end of year 7, the cost of widening at that time will be equal to $190,000 + 7x($23,000) = $351,000. The following estimates have been made of when widening to a four-lane bridge will be required: Pessimistic…
1.) TEI incorporated is considering the use of concrete electric pole in the expansion of its power distribution lines. A concrete pole costs P18,000 each and will last for 15 years. The company is presently using creosoted wooden poles which cost P12,000 per pole and will last 10 years. Assume annual taxes amount to 2% of the first cost and zero salvage value in both cases. .Evaluate the two options and recommend which one is to be chosen using the methods indicated . Money is worth 12% Using the Annual Cost Method. Annual Cost of Wooden Poles = __________________ , Annual Cost of Concrete Poles = _________________ Recommendation: _____________________________________
A bridge is to be constructed now as part of a new road. Engineers have determined that current traffic volume on the new road will justify a two-lane road and a bridge at the present time. Because of the uncertainty regarding future traffic, the time at which the additional two lanes will be required is currently being studied. Two alternatives are being considered. Alternative 1 - One-stage construction: Build a four lane bridge right now for $360,000. Alternative 2 - Two-stage construction: Start with a two-lane bridge now for $170,000 and widen to four lanes later when traffic justifies. The future cost of widening the bridge to four-lanes at that time will be $170,000 plus an extra $23,000 for every year that widening is delayed. For example, if future widening is done at the end of year 7, the cost of widening at that time will be equal to $170,000 + 7x($23,000) = $331,000. The following estimates have been made of when widening to a four-lane bridge will be required: Pessimistic…
The General Mills Company (GMC) purchased a milling machine for $80,000, which it intends to use for the next five years. This machine is expected to save GMC $37,000 during the first operating year. Then the annual savings are expected to decrease by 4% each subsequent year over the previous year due to increased maintenance costs. Assuming that GMC would operate the machine for an average of 4,000 hours per year and that it would have no appreciable salvage value at the end of the five-year period, determine the equivalent dollar savings per operating hour at 8% interest compounded annually. Click the icon to view the interest factors for discrete compounding when i = 8% per year. The equivalent net savings are $ per operating hour. (Round to the nearest cent.)
A factory manager is considering the purchase of one of the following two production equipment. Cash flow estimates for equipment A are in year-zero dollars while those of equipment B are in actual dollars. Equipment A (year-zero $) Initial investment Net annual revenue $9,800 $3,000 Market value at end of useful life Useful life, years $0 12 Equipment B (actual $) $11,200 $4,000 $0 12 The manager uses a market interest rate of 12% per year. If inflation rate is expected to average 7.69% per year over the next several years, determine the PW of each equipment. 1. The PW of Equipment A is A. $18,355 B. $13,176 ○ C. $12,800 ○ D. $8,783 2. The PW of Equipment B is ○ A. $15,200 B. $26,340 ○ C. $13,577 OD. $19,435
Your company is planning to expand by taking over the next-door manufacturing facility. You are faced with a buy-versus-lease option. The purchase price is $1.5 million, while you can lease it for $270,000 per year for 10 years. If purchased, it can be sold for 40% of its original price at the end of its 10 years life. In either case the annual income is estimated to be $1.2 million and the annual operating cost would be $300,000. Your company pays 38% combined income tax and the after-tax minimum attractive rate of return (MARR) is 10%. Assuming lease payments are due at the end of the year and using a straight-line depreciation over the 10 years life with full first year depreciation, determine: a. The EUAW = EUAB-EUAC for each option with MARR = 10%. Should the facility be purchased or leased? b. The break-even rate of return of purchase versus lease, i.e. ROR at which (EUAB – EUAC) purchase = (EUAB - EUAC) lease
We are making an investment of 20,000 thet can return a range of 2,500 to 4,500 each year for 10 years. Use a step size of 1,000 to determine NPV at high income. Our MARR is 8%.
Question 3 Consider a proposal to enhance production of tortillas en a taqueria. The new machine is estimated to cost $33 million and will incur an additional $1.5 million per year in maintenance costs. The machine will produce annual savings of $4.5 million each year. The Minimum acceptable rate of return (MARR) is 8.5% per year, and the study period is five years at which time the machine will be obsolete (worthless). What is the maximum (minimum) percentage of initial investmet change that reverse your decision?

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