1. You need to know whether you want to expand a new gas processing facility is justified under the following conditions: The proposal is for purchasing a separation unit costing CAD 200,000. The unit has an expected useful life of 35 years and a net salvage value (net proceeds from sale after tax adjustments) of CAD 35,000. Annual receipts of CAD 37,000 are expected, annual maintenance and administrative cost will be CAD 8000/year, and annual income taxes are CAD 5000. Given the foregoing data, which of the following statements are correct? Justify your answer. a. The proposal is justified for a MARR of 9%. b. The proposal has a net present worth of CAD 152,512 when 6% is used as the interest rate. c. The proposal is acceptable as long as MARR ≤ 11.81%. d. All of the proceedings are correct.
1. You need to know whether you want to expand a new gas processing facility is justified under the following conditions: The proposal is for purchasing a separation unit costing CAD 200,000. The unit has an expected useful life of 35 years and a net salvage value (net proceeds from sale after tax adjustments) of CAD 35,000. Annual receipts of CAD 37,000 are expected, annual maintenance and administrative cost will be CAD 8000/year, and annual income taxes are CAD 5000. Given the foregoing data, which of the following statements are correct? Justify your answer. a. The proposal is justified for a MARR of 9%. b. The proposal has a net present worth of CAD 152,512 when 6% is used as the interest rate. c. The proposal is acceptable as long as MARR ≤ 11.81%. d. All of the proceedings are correct.
Chapter1: Making Economics Decisions
Section: Chapter Questions
Problem 1QTC
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Transcribed Image Text:1. You need to know whether you want to expand a new gas processing facility is justified under the
following conditions:
The proposal is for purchasing a separation unit costing CAD 200,000. The unit has an expected
useful life of 35 years and a net salvage value (net proceeds from sale after tax adjustments) of
CAD 35,000. Annual receipts of CAD 37,000 are expected, annual maintenance and administrative
cost will be CAD 8000/year, and annual income taxes are CAD 5000. Given the foregoing data,
which of the following statements are correct? Justify your answer.
a. The proposal is justified for a MARR of 9%.
b. The proposal has a net present worth of CAD 152,512 when 6% is used as the interest
rate.
c. The proposal is acceptable as long as MARR ≤ 11.81%.
d. All of the proceedings are correct.
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