A portable concrete test instrument used in construction for evaluating and profiling concrete surfaces (MACRS-GDS 5-year propertyclass) is under consideration by a construction firm for $25,000. The instrument will be used for 6 years and be worth $1,500 at thattime. The annual cost of use and maintenance will be $12,000. Alternatively, a more automated instrument (same property class)available from the manufacturer costs $26,000, with use and maintenance costs of only $8,500 and salvage value after 6 years of$1,500. The marginal tax rate is 25%, and MARR is an after-tax 12%.Determine which alternative is less costly, based upon comparison of after-tax annual worth.Show the AW values used to make your decision:Alternative 1: $Alternative 2: $Carry all interim calculations to 5 decimal places and then round your final answer to the nearest dollar. The tolerance is ±10.

The AW can be computed using the NPV and PMT function. The alternative with the highest AW will be…

Answered: A portable concrete test instrument…

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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Temporary Housing Services Incorporated (THSI) is considering a project that involves setting up a temporary housing facility in an area recently damaged by a hurricane. THSI will lease space in this facility to various agencies and groups providing relief services to the area. THSI estimates that this project will initially cost $4.87 million to setup and will generate $20 million in revenues during its first and only year in operation (paid in one year). Operating expenses are expected to total $12 million during this year and depreciation expense will be another $3 million. THSI will require no working capital for this investment. THSI's marginal tax rate is 35%. Assume that THSI's cost of capital is 14.6% p.a. Compute the NPV of the temporary housing facility to the nearest dollar
Temporary Housing Services Incorporated (THSI) is considering a project that involves setting up a temporary housing facility in an area recently damaged by a hurricane. THSI will lease space in this facility to various agencies and groups providing relief services to the area. THSI estimates that this project will initially cost $5 million to set up and will generate $20 million in revenues during its first and only year in operation (paid in one year). Operating expenses are expected to total $12 million during this year and the capital cost allowance will be another $3 million. THSI will require no working capital for this investment. THSI's marginal tax rate is 35%. Assume that THSI's cost of capital for this project is 15%. The net present value (NPV) of this temporary housing project is closest to: $435,000 -$650,000 $1,960,000 -$435,000 $1,250,000

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