A federal agency received a recommendation to raise Corporate Average Fuel Economy standards to 35mpg. To evaluate recommendation, the agency started performing cost-benefit analysis and collected the following facts: Costs: 1. one-time R&D cost of $500M 2. new cars cost $100 more (10M cars sold per year) = $1B/yr 3. 100 more fatalities per year in traffic accidents (value of life is $3M) = $300M/yr Benefits: 1. individuals use $10 less in gas/year (100M cars in US; to be totally accurate, only 10M cars have gas savings the first year, 20M the second year, but to keep the problem easy, assume all cars get the savings every year) = $1B/yr 2. less pollution in environment (valued at $225M/yr) 3. lower military budget because US takes less action in Persian Gulf ($100M/yr). Assume that a discount rate is 5%.

A federal agency received a recommendation to raise Corporate Average Fuel Economy standards to 35mpg. To evaluate recommendation, the agency started performing cost-benefit analysis and collected the following facts: Costs: 1. one-time R&D cost of $500M 2. new cars cost $100 more (10M cars sold per year) = $1B/yr 3. 100 more fatalities per year in traffic accidents (value of life is $3M) = $300M/yr Benefits: 1. individuals use $10 less in gas/year (100M cars in US; to be totally accurate, only 10M cars have gas savings the first year, 20M the second year, but to keep the problem easy, assume all cars get the savings every year) = $1B/yr 2. less pollution in environment (valued at $225M/yr) 3. lower military budget because US takes less action in Persian Gulf ($100M/yr). Assume that a discount rate is 5%.

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

See similar textbooks

Similar questions

A suburban taxi company is considering buying taxis with diesel engines instead of gasoline engines. The cars average 120,000 miles a year. Use EUAC to determine the more economical choice if interest rate is 5%. Diesel Gasoline Vehicle cost $ 24,000.00 $ 19,000.00 Useful life (in years) 5 4 Fuel cost per gallon $ 3.52 $ 3.68 Mileage per gallon 30 25 Annual repairs $ 900.00 $ 700.00 Annual insurance premium $1,000.00 $1,000.00 End of useful life resale value $ 4,000.00 $ 6,000.00 What is value of EUAC for diesel engine? What is the value of EUAC for gasoline engine?
A company needs a 33 tonnage refrigeration system. Knowing that a 20 tonnage similar refrigeration system only cost $100,000 15 years ago when the approximate cost index was 150, and that the cost index now is 370. The cost-capacity factor for a refrigeration system is 0.53. 1) estimate the required cost for the 33 tonnage refrigeration system in current year. 2) If borrowing the amount of required money is from a bank in current year and the bank interested rate is 6% per year, find the equivalent value (FW) as a single payment payed back to the bank in 15 years.
A chip manufacturer makes video gaming chip that can be sold for $50. The chip material cost is $15 for each chip. The operations costs of the chip manufacturer (administration etc.) is $100000. The chip manufacturing machinery costs $500000 that is depreciated over 10 years to a salvage value of zero. a) What is the accounting breakeven level of sales in terms of number of chips sold? b) b. What is the NPV breakeven level of sales assuming a tax rate of 35%, 10-year project life and a discount rate of 12%.
Attached is questions diagram, USE EXCEL AS ITS REQUIRED Question 10. Using the replacement chain method (machine B can be replaced with an identical machine at the end of year 3), determine which project should be adopted after tax. Pick the correct answer. Machine A Machine B Either machine Neither machine
Assume you currently work for the city of Edmonton in their traffic safety department. It is estimated that you could reduce fatality risk by 3% at a particular intersection if you upgrade the traffic lights to use new high visibility LEDs. The cost of this upgrade is estimated to be $400,000. If we assume a human life is worth 10 million, should you spend the money to upgrade the traffic lights? (Hint: to multiply 1% by 200 you follow this process: 0.01 x 200 = 2). a No, since the expected benefit ($300,000) is lower than the cost. b Yes, since the expected benefit ($400,000) is equal to the cost. c Yes, since the expected benefit ($200,000) is greater than the cost. d No, since the expected benefit ($100,000) is lower than the cost.
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
4. A Taxi company is considering the following 4 cars for their limo service. All alternatives need to be replaced after 6 years. Consider a MARR of 9%. Cost Yearly Benefit Alternative 1 $65,000 $16,300 Alternative 2 $55,000 $15,100 Alternative 3 $25,000 $5.200 Alternative 4 $80,000 $21,300 Determine the following the best alternative based on the following analyses: a) Discounted payback period b) Future worth c) Benefit-Cost ratio
A company engaging in selling of laboratory equipment estimates that profit from sales should increase by *2,00, 000 per year if a mobile demonstration unit is built. A large unit with sleeping accommodation for the driver will cost 9, 70,000 while a smaller unit without sleeping cabin will be Rs. 6,30,000. Salvage values for the large and small units after 5 years will be, 197,000 and Rs.35000 respectively. Lodging costs saved by the larger unit should amount 1, 10,000 annually, but its transportation costs will exceed those of the smaller unit by 31, 000. With the money at 9% should a mobile demonstration unit be built? And if so which size is preferable? Use net annual worth to determine which is better and show all the steps and working

Recommended textbooks for you

Essentials Of Investments

Finance

ISBN:

9781260013924

Author:

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

Publisher:

Mcgraw-hill Education,

FUNDAMENTALS OF CORPORATE FINANCE

Finance

ISBN:

9781260013962

Author:

BREALEY

Publisher:

RENT MCG

Financial Management: Theory & Practice

Finance

ISBN:

9781337909730

Author:

Brigham

Publisher:

Cengage

Foundations Of Finance

Finance

ISBN:

9780134897264

Author:

KEOWN, Arthur J., Martin, John D., PETTY, J. William

Publisher:

Pearson,

Fundamentals of Financial Management (MindTap Cou…

Finance

ISBN:

9781337395250

Author:

Eugene F. Brigham, Joel F. Houston

Publisher:

Cengage Learning

Corporate Finance (The Mcgraw-hill/Irwin Series i…

Finance

ISBN:

9780077861759

Author:

Stephen A. Ross Franco Modigliani Professor of Financial Economics Professor, Randolph W Westerfield Robert R. Dockson Deans Chair in Bus. Admin., Jeffrey Jaffe, Bradford D Jordan Professor

Publisher:

McGraw-Hill Education

Essentials Of Investments

Finance

ISBN:

9781260013924

Author:

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

Publisher:

Mcgraw-hill Education,

FUNDAMENTALS OF CORPORATE FINANCE

Finance

ISBN:

9781260013962

Author:

BREALEY

Publisher:

RENT MCG

Financial Management: Theory & Practice

Finance

ISBN:

9781337909730

Author:

Brigham

Publisher:

Cengage

Foundations Of Finance

Finance

ISBN:

9780134897264

Author:

KEOWN, Arthur J., Martin, John D., PETTY, J. William

Publisher:

Pearson,

Fundamentals of Financial Management (MindTap Cou…

Finance

ISBN:

9781337395250

Author:

Eugene F. Brigham, Joel F. Houston

Publisher:

Cengage Learning

Corporate Finance (The Mcgraw-hill/Irwin Series i…

Finance

ISBN:

9780077861759

Author:

Stephen A. Ross Franco Modigliani Professor of Financial Economics Professor, Randolph W Westerfield Robert R. Dockson Deans Chair in Bus. Admin., Jeffrey Jaffe, Bradford D Jordan Professor

Publisher:

McGraw-Hill Education

SEE MORE TEXTBOOKS