A contractor is considering whether to buy or lease a new machine for her layout site work.Buying a new machine will cost $120,000, with a residual value of $12,000 after the machine'suseful life of eight years. On the other hand, leasing requires an annual payment of $30,000,which occurs at the start of each year. MARR is 20%. On the basis of an internal rate of returnanalysis, which alternative should the contractor be advised to accept?

First, we need to calculate the Net Present Value (NPV) for the buying option. The NPV is the sum of…

Answered: A contractor is considering whether to…

ENGR.ECONOMIC ANALYSIS

14th Edition

ISBN:9780190931919

Author:NEWNAN

Publisher:NEWNAN

Chapter1: Making Economics Decisions

Section: Chapter Questions

Problem 1QTC

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Bailey, Inc., is considering buying a new gang punch that would allow them to produce circuit boards more efficiently. The punch has a first cost of $80,000 and a useful life of 15 years. At the end of its useful life, the punch has no salvage value. Annual labor costs would increase $6,000 using the gang punch, but annual raw material costs would decrease $12,000. MARR is 5.5% /year. What is the present worth of this investment?
Waller County is planning to construct a Dam some tens of miles away from the Hempstead Recreation center to facilitate fishing in the El Manny River Basin and Power Generation. The first cost for the Dam will amount to $6,500,000. Annual maintenance and repairs will amount to $24,000 for the first four years, to $28,000 for each year in the next eight years, and to $32,000 per year for the next four years. At the end of the 16th year, $25,000 is estimated to be deposited into Waller county account as tax credits earned for its environmental compliance in the construction and operation of the Dam. In addition a major overhaul costing $650,000 will be required at the end of the seventh year. Use an interest rate of 10% and : a) Determine the engineering economy symbols and their value for each option. b) Construct the cash flow diagram c) Calculate the Capital Recovery for the project
Your company is planning to purchase a new log splitter for is lawn and garden business. The new splitter has an initial investment of $180,000. It is expected to generate $25,000 of annual cash flows, provide incremental cash revenues of $150,000, and incur incremental cash expenses of $100,000 annually. What is the payback period and accounting rate of return (ARR)?
Your firm is thinking about investing $300,000 in the overhaul of a manufacturing cell in a lean environment. Revenues are expected to be $39,000 in year one and then increasing by $13,000 more each year thereafter, Relevant expenses will be $20,000 in year one and will increase by $10,000 per year until the end of the cell's nine-year life. Salvage recovery at the end of year nine is estimated to be $10,000. What is the annual equivalent worth of the manufacturing cell if the MARR is 10% per year? How sensitive is the annual worth to ± 10% changes in the MARR? Are changes in the MARR really a significant consideration in this problem? Click the icon to view the interest and annuity table for discrete compounding when the MARR is 9% per year. E Click the icon to view the interest and annuity table for discrete compounding when the MARR is 10% per year. Click the icon to view the interest and annuity table for discrete compounding when the MARR is 11% per year. Find Annual Equivalent…
Most likely estimates for a project are as follows. Choose the correct choice below. MARR Useful life Initial investment Receipts-Expenses (R-E) Determine whether the statement "This project (based upon the most likely estimates) is profitable." is true or false Click the icon to view the relationship between the PW and the percent change in parameter Click the icon to view the interest and annuity table for discrete compounding when the MARR is 15% per year. O False O True 15% per year 6 years $6,500 $1,800/year am
A company is considering an investment (at time = 0) in a machine that produces large plastic boxes. The cost of the machine is 43,118 dollars with zero expected salvage value. Annual production in units during the 3-year life of the machine is expected to be (starting at time = 1) 4,213, 8,486, and 12,468. The sale price per unit of the plastic boxes is 12 dollars in year one, and then expected to increase by 9% per year. Production costs per unit will be 5 dollars in year one, and then expected to increase by 3% per year. Depreciation on the machine is 10,192 dollars per year, the tax rate is 40% and the minimum acceptable rate of return is 6% percent. Calculate the net present value of this investment. Assume all flows are at the end of each year. (note: round your answer to the nearest cent, and do not include spaces, currency signs, plus or minus signs, or commas)

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