A company is considering two methods for obtaining a certain part on annual basis. Method A will involve purchasing a machine for $60K with a life of 5 years, a $3K salvage value and a fixed annual operating cost of $10K. Additionally, each part produced by the method will cost $10. Method B will involve purchasing the part from a subcontractor for $27 per part. At an interest rate of 10% per year, What is the number of parts (in x thousands) per year required for the two methods to break even ? A. 1480 B.1490 C. 1500 which is it and why

A company is considering two methods for obtaining a certain part on annual basis. Method A will involve purchasing a machine for $60K with a life of 5 years, a $3K salvage value and a fixed annual operating cost of $10K. Additionally, each part produced by the method will cost $10. Method B will involve purchasing the part from a subcontractor for $27 per part. At an interest rate of 10% per year, What is the number of parts (in x thousands) per year required for the two methods to break even ? A. 1480 B.1490 C. 1500 which is it and why

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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A small business owner is considering the purchase of a new copier for the business. The purchase price is $7500 including set up and installation and has an expected life of 10 years. Monthly operating costs for paper and toner are expected to be $200/month while maintenance costs are $150 every 3 months. At the end of 10 years, the copier will have a resale value of $750. What are the life cycle costs of this copier to the business if the prevailing interest rate for the time period averages 5%?
A piece of equipment has a first cost of $75000, a maximum useful life of 4 years, and a market (salvage) value described by the relation Sk = 60000 – 10500k, where k is the number of years since it was purchased. The AOC series is estimated using AOC = 30000 + 4500k. The interest rate is 9% per year. When should the company replace this asset?
A laboratory might buy a new piece of equipment for $26,785. The equipment's useful life is 4 years, and its salvage value is $5000. The company will save $9000 per year for 4 years if it buys the equipment. Maintenance costs in year 1 will be zero, but will increase each year starting in year 2 by $500 per year (the first year is covered by a warranty). Determine the Equivalent Annual Worth if the company's cost of money is 10%.
A construction company can purchase a used backhoe for $90,000 and spend $450 per day in operating costs. The equipment will have a 5 -year life then sell it at salvage for $3,000. Alternatively, the company can lease the equipment for $800 per day. How many days per year must the company use the equipment in order to justify its purchase at an interest rate of 6% per year.
A mechanical workshop invested in purchasing a semiautomatic machine for $50,000, that expected to generate a net income of $8,000 starting year 4 and expected to decrease by 5% per year thereafter. The useful life of the machine is 20 years. If the workshop's minimum attractive rate of return (MARR) is 10% per year, the standard notation for determining the discounted payback period is: O 0 = -50,000 + 8,000 (P/A, 5%, 10%, np - 3) (P/F, 10%, 3) O 0= -50,000 + 8,000 (P/A, 5%, 10%, np) O 0 = -50,000 + 8,000 (P/A, -5%, 10%, np - 4) (P/F, 10%, 4) O 0= -50,000 + 8,000 (P/A, 5%, 10%, np - 4) (P/F, 10%, 4) O 0= -50,000 + 8,000 (P/A, -5%, 10%, np) (P/F, 10%, 4) None of them O 0 = -50,000 + 8,000 (P/A, -5%, 10%, np - 3) (P/F, 10%, 3) O 0= -50,000 + 8,000 (P/A, -59%, 10%, np) (P/F, 10%, 3)
The initial investment cost of machine A is 9,000 TL, the useful life of the machine is 6 years and annual operating costs are 5,000 TL. The initial investment cost of machine B is 16,000 TL, and at the end of its 9-year useful life, the machine can be sold for 4,000 TL. Since the operating costs of machine B are 4,000 TL per year, compare the two machines according to the present value analysis based on an analysis period of the least common multiple of the alternative life of the machines. The interest rate is 10% per year.
Calculate the present worth of all costs for a newly acquired machine with an initial cost of $24,000, no trade-in value, a life of 11 years, and an annual operating cost of $14,000 for the first 6 years, increasing by 10% per year thereafter. Use an interest rate of 10% per year. The present worth of all costs for a newly acquired machine is determined to be $
An engineer with Haliburton calculated the AW values shown for retaining a presently owned machine additional years. A challenger has an economic service life of 7 years with AW = $-86,000 per year. Assuming all future costsremain as estimated for the analysis, (a) when should the company replace the defender and with what machine, and (b) when should the companypurchase the challenger? The MARR is 12% per year. Assume used machines like the one presently owned will always be available.
An elective project is currently under review. It requires an initial investment of $116,000 for equipment. The profit is expected to be $28,000 each year, over the 6-year project period. The salvage value of the equipment at the end of the project period is projected to be $22,000. Assume a MARR of 10%. Find an IRR for this project.
A piece of equipment has a first cost of $75000, a maximum useful life of 4 years, and a market (salvage) value described by the relation Sk = 60000 – 10500k, where k is the number of years since it was purchased. The AOC series is estimated using AOC= 30000 + 4500k. The interest rate is 9% per year. When should the company replace this asset?
If produced by Plan A, a producer’s initial capital cost will be $120,000, its annual operating cost will be $30,000, and its salvage value after 4 years will be 20,000. With Plan B, there is a first cost of $240,000, an annual operating cost of $10,000, and $40,000 salvage value after 4-year life. Based on a present worth analysis at 15% interest rate, which plan should be chosen?
A replacement electric motor is being considered for purchase. It is capable of providing 200 hp. The pertinent data are follows: Cost - 3200 dollars Maintenance Cost per year - 50 dollars Life expectancy - 14years Salvage value after - 1,429.93 dollars The motor is used for 400 h/year and the cost of electricity is 0.0 dollars/kWh. What is most nearly the effective annual cost using an interest rate of 10%

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