7-22. A company is considering the purchase of a capitalasset for $100,000. Installation charges needed to makethe asset serviceable will total $30,000. The asset will bedepreciated over six years using the straight-line methodand an estimated salvage value (SV6) of $10,000. Theasset will be kept in service for six years, after which it willbe sold for $20,000. During its useful life, it is estimatedthat the asset will produce annual revenues of $30,000.Operating and maintenance (O&M) costs are estimated tobe $6,000 in the first year. These O&M costs are projectedto increase by $1,000 per year each year thereafter. Theafter tax MARR is 15% and the effective tax rate is 21%.(7.9)a. Use the tabular format given in Figure 7-5 to computethe after-tax cash flows.b. Compute the after-tax present worth of the project,and use a uniform gradient in your formulation.STU

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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

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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
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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.
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…
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12. A recapping plant is planning to acquire a new diesel engine set to replace its present unit which they run during power interruptions. The new diesel set would cost $135,000 with a five years life and zero residual value. Annual operating cost would be $150,000. On the other hand, the present generating set has a remaining life of 5 years. Its present value is $7,500 but has a zero residual value after 5 years. Annual operating costs is placed at $187,500. If MARR=10%, which is more profitable – to buy the new generator set or retain the present set? Calculate the difference in annual costs between the two alternatives. mpanu ic conridering two alternatives with regards to an eguinment which it needs The
Machines that have the following costs are under consideration for a new manufacturing process. Compute the Equivalent Annual Worth with an interest rate of 8%, compounded semiannually. The machine last 4 years. First cost: $60,000 Semiannual Operating cost: $6,000 Semiannual incomes: $14,000 Salvage value: $10,000 a. EAW = $175 b. EAW = $21,745 c . EAW = $1,958 d. EAW = $2,285
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