A 3 year-old a computer-controlled fabriccutting machine, which had a $20,000purchasing price, has a current market (trade-in) value of $12,000 and expected O&M costsof $8,000, increasing by $1,000 per year. Themachine is required to have an immediaterepair that costs $2,000. The estimatedmarket values are expected to decline by 20%annually (going forward). The machine can beused for another 7 years at most. The newmachine has a $40,000 purchasing price. Thenew machine's O&M cost is estimated to be$4,000 for the first year, decreasing at anannual rate of $100 thereafter. The firm'sMARR is 20%. Assume a unique minimumAEC(20%) for both machines (both the currentand replacement machine).Using the information above, determine theeconomic service life along with the optimumannual equivalent cost of the defender (This isan infinite Horizon decision problem).

A 3 year-old a computer-controlled fabric cutting machine, which had a $20,000 purchasing price, has a current market (trade- in) value of $12,000 and expected O&M costs of $8,000, increasing by $1,000 per year. The machine is required to have an immediate repair that costs $2,000. The estimated market values are expected to decline by 20% annually (going forward). The machine can be Ucod for an por 7voarc at Tho nou

A 3 year-old a computer-controlled fabric cutting machine, which had a $20,000 purchasing price, has a current market (trade- in) value of $12,000 and expected O&M costs of $8,000, increasing by $1,000 per year. The machine is required to have an immediate repair that costs $2,000. The estimated market values are expected to decline by 20% annually (going forward). The machine can be Ucod for an por 7voarc at Tho nou

Essentials Of Investments

11th Edition

ISBN:9781260013924

Author:Bodie, Zvi, Kane, Alex, MARCUS, Alan J.

Publisher:Bodie, Zvi, Kane, Alex, MARCUS, Alan J.

Chapter1: Investments: Background And Issues

Section: Chapter Questions

Problem 1PS

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Tanaka Machine Shop is considering a four-year project to improve its production efficiency. Buying a new machine press for $370,000 is estimated to result in $140,000 in annual pretax cost savings. The press falls in the MACRS five-year class, and it will have a salvage value at the end of the project of $62,000. Refer to Table 8.3. The press also requires an initial investment in spare parts inventory of $10,000, along with an additional $1,500 in inventory for each succeeding year of the project. The shop’s tax rate is 25 percent and the project's required return is 10 percent. Calculate the NPV of this project. Note: Do not round intermediate calculations and round your answer to 2 decimal places, e.g., 32.16.
The engineering team at Manuel’s Manufacturing, Inc., is planning to purchase an enterprise resource planning (ERP) system. The software and installation from Vendor A costs $380,000 initially and is expected to increase revenue $125,000 per year every year. The software and installation from Vendor B costs $280,000 and is expected to increase revenue $95,000 per year. Manuel’s uses a 4-year planning horizon and a 10% per year MARR. Solve, a. What is the discounted payback period of each investment? b. Which ERP system should Manuel purchase if his decision rule is to select the system with the shortest DPBP?
Crazy Burger Shop has the following investment opportunity: Burger machinery at t=0 costs $6,000. The cost of making burgers is $2,000 per year at t=1, t=2, and t=3. The burger machinery is depreciated using the straight-line method to $1,500 over 3 years. The market value of the burger machinery after three years is $2,600. Estimated annual sales are $4,500 per year at t=1, t=2, and t=3. The required return is 15%. The tax rate is 18%. Assume no working capital requirements. What is the NPV of this project? A. $259.97 B. $1,006.62 C. $876.44 D. $-702.92
Costs associated with the manufacture of miniature high-sensitivity piezoresistive pressure transducers is $85,000 per year. A clever industrial engineer found that by spending $19,000 now to reconfigure the production line and reprogram two of the robotic arms, the cost will go down to $52,000 next year and $58,000 in years 2 through 5. Using an interest rate of 15% per year, determine the present worth of the savings due to the reconfiguration. The present worth of the savings is determined to be $
A commercial 3D printer is purchased for $350,000. The salvage value of the printer decreases by 30% each year that it is held. The cost to operate and maintain the machine the first year it is used is $14,000; these costs increase by $5,000 each year. What is the optimal replacement interval and minimum EUAC for the printer, assuming a MARR of 13% is used? Click here to access the TVM Factor Table Calculator. years ORI: EUAC*: $ Carry all interim calculations to 5 decimal places and then round your final answers to a whole number. The tolerance is ±5 for the EUAC*.
A small company that manufactures vibration isolation platforms is trying to decide whether it should immediately upgrade the current assemblysystem D, which is rather labor-intensive, with the more highly automated system C one year from now. Some components of the current system canbe sold now for $9000, but they will be worthless hereafter. The operating cost of the existing system is $192,000 per year. System C will cost $320,000 with a $50,000 salvage value after four years. Its operating cost will be $68,000 per year. If you are told to do a replacement analysis using an interest rate of 10% per year, which system do you recommend?
A manufacturer of automated optical inspection devices is deciding on a project to increase the productivity of the manufacturing processes. The estimated costs for the two feasible alternatives being compared are shown below. Use the internal rate of return (IRR) method to determine which alternative should be selected if the analysis period is 8 years and the company's MARR is 4% per year. Alternative M N Initial costs $30,000 $45,000 Net annual cash flow $4,500 $7,000 Life in years 8 8 (a) IRR of base alternative = (b) IRR of incremental cash flow = (c) Choose Alternative
Smithson Mechanical Ltd. is considering replacing an existing hoist with a newer, more efficient piece of equipment. The existing hoist has a remaining useful life of 5 years. The new hoist costs CAD 46,000 to purchase and install and alsohas an estimated life of 5 years. It is a Class 5 asset with a CCA rate of 10.0% The company currently produces 8,500 units per year. The new hoist is expected to reduce variable costs by CAD 1.30 per unit and fixed costs by CAD 3,500 year. An increased investment in new working capital of CAD 4,500 will also be required to support the new machine. The existing hoist can currently be sold for CAD 15,000. At the end of 5 years, the existing hoist will have a salvage value of CAD 2,000. The new hoist can be sold for CAD 11,000 at the end of the 5-year period. The project’s RRR is 7.0% and its tax rate is 25.0%. The present value of the net initial cash flows of this project today is closest to: a) CAD -31,090. b) CAD -35,500. c) CAD -43,957. Net…
The Fence Company is setting up a new production line to produce top rails. The relevant data for two alternatives are shown below. Solve, a. Based on MARR of 8%, determine the annual rate of production for which the alternatives are equally economical. b. If it is estimated that production will be 300 top rails per year, which alternative is preferred and what will be the total annual cost?
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A retrofitted space-heating system is being considered for a small office building. The system can be purchased and installed for $115,000, and it will save an estimated 240,000 kilowatt-hours (kWh) of electric power each year over a six-year period. A kilowatt-hour of electricity costs $0.12, and the company uses a MARR of 12% per year in its economic evaluations of refurbished systems. The market value of the system will be $23,000 at the end of six years, and additional operating and maintenance expenses are $12,700 per year. Use the benefit-cost method to make a recommendation. Click the icon to view the interest and annuity table for discrete compounding when the MARR is 12% per year. The conventional B-C ratio of the system is places.) This B-C ratio indicates that the project is (Round to two decimal

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