A pipeline contractor can purchase a needed truck for $44,000. Its estimated life is 6 years, and it has no salvage value. Maintenance isestimated to be $2,100 per year. Operating expense is $60 per day. The contractor can hire a similar unit for $130 per day. MARR is7%.Click here to access the TVM Factor Table CalculatorPart aKPart bIf the truck is needed for 180 days/year, should the contrac buy the truck or hire the similar unit?Determine the dollar amount of annual savings generated by using the preferred alternative rather than the nonpreferred.Carry all interim calculations to 5 decimal places and then round your final answer to the nearest dollar. The tolerance is ±5.Save for LaterAttempts: 0 of 3 used Submit Answer

It is a case of comparing annual costs incurred by buying the equipment and by hiring the equipment.…

Answered: A pipeline contractor can purchase a…

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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Please view the following video before answering this question. Video Solution: 11.01-PR007 A pipeline contractor can purchase a needed truck for $44,000. Its estimated life is 6 years, and it has no salvage value. Maintenance is estimated to be $2,100 per year. Operating expense is $60 per day. The contractor can hire a similar unit for $130 per day. MARR is 7%. Click here to access the TVM Factor Table Calculator Part a How many days per year must the truck's services be needed such that the two alternatives are equally costly? days Carry all interim calculations to 5 decimal places and then round your final answer up to the nearest day. The tolerance is 14. Attempts: 0 of 3 used Save for Later Submit Answer
A new robot has a first cost of $380,000, and an annual operating cost of $88,000 in years 1 and 2, increasing by $10000 per year thereafter. The salvage value of the system is $25,000 regardless of when the system is retired within its maximum useful life of 5 years. Using a MARR of 14% per year, determine the ESL and the respective AW value of the system ESL: a) 1 year b) 4 years c) 5 years d) 3 years AW value of system: a) $204,860 b) $336,284 c) $97,953 d) $496,200
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Crane Corp. is considering purchasing one of two new diagnostic machines. Either machine would make it possible for the company to bid on jobs that it currently isn't equipped to do. Estimates regarding each machine are provided here. Original cost Estimated life Salvage value Estimated annual cash inflows Estimated annual cash outflows Net present value Machine A $77,000 8 years 0 Profitability index $19,900 $4,800 Machine A Which machine should be purchased? Click here to view the factor table. Calculate the net present value and profitability index of each machine. Assume a 9% discount rate. (If the net present value is negative. use either a negative sign preceding the number eg -45 or parentheses eg (45). Round answer for present value to 0 decimal places, e.g. 125 and profitability index to 2 decimal places, e.g. 10.50. For calculation purposes, use 5 decimal places as displayed in the factor table provided.) Machine B should be purchased. $188,000 8 years 0 $40,200 $9,860…
onsider the following financial informationabout a retooling project at a computer manufacturing company:• The project costs $2.5 million and has a five-yearservice life.• The retooling project can be classified as sevenyear property under the MACRS rule.• At the end of the fifth year, any assets held for theproject will be sold. The expected salvage valuewill be about 10% of the initial project cost.• The firm will finance 40% of the project moneyfrom an outside financial institution at an interestrate of 10%. The firm is required to repay the loanwith five equal annual payments.• The firm’s incremental (marginal) tax rate on theinvestment is 35%.• The firm’s MARR is 18%.With the preceding financial information,(a) Determine the after-tax cash flows.(b) Compute the annual equivalent worth for thisproject.
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You must evaluate the purchase of a proposed spectrometer for the R&D department. The base price is $150,000, and it would cost another $22, 500 to modify the equipment for special use by the firm. The equipment falls into the MACRS 3-year class and would be sold after 3 years for $52, 500. The applicable depreciation rates are 33%, 45% , 15%, and 7%. The equipment would require a $13, 000 increase in net operating working capital (spare parts inventory). The project would have no effect on revenues, but it should save the firm $30,000 per year in before - tax labor costs. The firm's marginal federal - plus - state tax rate is 40%. What is the initial investment outlay for the spectrometer, that is, what is the Year 0 project cash flow? Round your answer to the nearest cent. Negative amount should be indicated by a minus sign. $ What are the project's annual cash flows in Years 1, 2, and 3? Round your answers to the nearest cent. In Year 1 $ In Year 2…
Assume that a company is choosing between two alternatives-lease a piece of equipment for five years or buy a piece of equipment and sell it in five years. The costs associated with the two alternatives are summarized as follows: Lease Buy $ 60,000 $ 6,000 Purchase cost of equipment Annual operating costs Immediate deposit Annual lease payments Salvage value (5 years from now) $ 8,000 Click here to view Exhibit 7B-1 and Exhibit 7B-2, to determine the appropriate discount factor(s) using the tables provided. If the company chooses the lease option, it will have to pay an immediate deposit of $25,000 to cover any future damages to the equipment. The deposit is refundable at the end of the lease term. The annual lease payments are made at the end of each year. Based on a net present value analysis with a discount rate of 12%, what is the financial advantage (disadvantage) of buying the equipment rather than leasing it? $ 25,000 $ 18,000
2) The initial cost of a new m/c is $10,000. The annual operating cost is $1,000/yr for first 3 years, and then becomes $3,000/yr after that. The m/c needs a major repair at the end of 5th year, which costs $5,000. The m/c has 10 years useful life with salvage value of $4,000. Calculate EUAC for keeping the m/c for 10 years. (i=10%/yr)
Central Mass Ambulance Service can purchase a new ambulance for $200,000 that will provide an annual net cash flow of $50,000 per year for five years. The salvage value of the ambulance will be $25,000. Assume the ambulance is sold at the end of year 5. Calculate the NPV of the ambulance if the required rate of return is 9%. (Round your answer to the nearest $1.) A) $(10,731) B) $10,731 C) $(5,517) D) $5,517
You must evaluate the purchase of a proposed spectrometer for the RAD department. The base price is $120,000, and it would cost another $30,000 to modify the equipment for special use by the firm. The equipment falls into the MACRS 3-year class and would be sold after 3 years for $42,000. The applicable depreciation rates are 33%, 45%, 15%, and 75%. The equipment would require a $50,000 increase in net operating working capital (spare parts inventory). The project would have no effect on revenues, but it should save the firm $32,000 per year in before-tax labor costs. The firm's marginal federal-plus-state tax rate is 40%. Using the same data above, instead of MACRS depreciation method, the entity will use the straight-line method. Determine: 1. Project’s annual cash flows in Years 1, 2 and 3. 2. Calculate NPV, using the 12% WACC. 3. Should the equipment be purchased using the straight-line method of depreciation? Why?
An injection molding system has a first cost of $200,000 and an annual operating cost of $69,000 in years 1 and 2, increasing by $5,500 per year thereafter. The salvage value of the system is 25% of the first cost regardless of when the system is retired within its maximum useful life of 5 years. Using a MARR of 11% per year, determine the ESL and the respective AW value of the system. The ESL is ]year(s) and AW value of the system is $|

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