A project of providing electric scooters in an area has an initial cost of $400,000. The e-scooter service is planned for 5 years. The annual maintenance costs are estimated at$40,000 annually and expected to increase $5,000 every year throughout the projectplanning time. An infrastructure maintenance will be required at the end of year 2, whichis estimated to cost $50,000. The e-scooter system will generate revenue of $100,000 peryear for 5 years and then it will be sold after the final annual maintenance. The salvagevalue of the remaining assets at the end of the project will be $50,000.Draw the cash flow diagram. Assume "end-of-period" cash flows.

Cash flow diagram is pictorial representation of cash inflows and outflows of a project.

Answered: A project of providing electric…

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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Jones Excavation Company is planning an investment of $233,500 for a bulldozer. The bulldozer is expected to operate for 2,000 hours per year for eight years. Customers will be charged $120 per hour for bulldozer work. The bulldozer operator costs $37 per hour in wages and benefits. The bulldozer is expected to require annual maintenance costing $20,000. The bulldozer uses fuel that is expected to cost $48 per hour of bulldozer operation. Present Value of an Annuity of $1 at Compound Interest Year 6% 10% 12% 15% 20% 1 0.943 0.909 0.893 0.870 0.833 2 1.833 1.736 1.690 1.626 1.528 3 2.673 2.487 2.402 2.283 2.106 4 3.465 3.170 3.037 2.855 2.589 5 4.212 3.791 3.605 3.353 2.991 6 4.917 4.355 4.111 3.785 3.326 7 5.582 4.868 4.564 4.160 3.605 8 6.210 5.335 4.968 4.487 3.837 9 6.802 5.759 5.328 4.772 4.031 10 7.360 6.145 5.650 5.019 4.192
A newly constructed water treatment facility costs $2 million. It is estimated that the facility will need revamping to maintain the original design specification every 30 years at a cost of $1 million. Annual repairs and maintenance costs are estimated to be $100,000. At an interest rate of 8%, determine the capitalized cost of the facility, assuming that it will be used for an indefinite period.
Computer-Aided Machining Company plans to invest in a state- of-the-art 5-axis machining center with invoice price of $450,000, freight of $25,000, site preparation $40,000, and installation costs of $35,000. The project also requires special tooling costing $50,000. The machining center has an expected life of ten years and the tooling only 5 years so tooling replacement is needed after the fifth year. The machining center is a 7-year depreciable asset and the tooling is a 3-year class. After it's useful life, the machining center is salvaged for $50,000 and the tooling is scrapped for $1500. The company expects to increase its annual production revenues by $400,000 with associated annual production costs of $45,000 direct materials, $75,000 direct labor, and $37,500 manufacturing overhead. Taxes are assessed at a 35% rate on taxable income. The company has decided to take an eight-year loan of $300,000 at 6% to help defray cash outlay and to establish working capital of $70,000. a)…
A city is planning a new pipeline to supply water from distant mountains. The planning horizon chosen is 50 years, and the city uses an interest rate of 7%. For $250 million, the city can build a pipeline now that would supply its needs for 50 years, or it could build the project in two stages: $150 million now and $200 million in Year 25. Annual operation and maintenance for the first stage of the two-stage project are $3.0 million through Year 25 followed by $6.0 million for the combined first and second stage project after Year 25 and through Year 50. a) Form the cash flow table for the two alternatives and the incremental investment, showing the correct signs for all entries. b) Using present worth analysis, determine the best project. c) Using annual cash flow analysis, determine the best project. d) Using the incremental rate of return analysis, determine the best project. Check at the MARR only; do not try to find the incremental ROR itself. e) Using…
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Jones Excavation Company is planning an investment of $125,000 for a bulldozer. The bulldozer is expected to operate for 1,000 hours per year for five years. Customers will be charged $90 per hour for bulldozer work. The bulldozer operator costs $30 per hour in wages and benefits. The bulldozer is expected to require annual maintenance costing $7,500. The bulldozer uses fuel that is expected to cost $15 per hour of bulldozer operation. Present Value of an Annuity of $1 at Compound Interest Year 6% 10% 12% 15% 20% 1 0.943 0.909 0.893 0.870 0.833 2 1.833 1.736 1.690 1.626 1.528 3 2.673 2.487 2.402 2.283 2.106 4 3.465 3.170 3.037 2.855 2.589 5 4.212 3.791 3.605 3.353 2.991 6 4.917 4.355 4.111 3.785 3.326 7 5.582 4.868 4.564 4.160 3.605 8 6.210 5.335 4.968 4.487 3.837 9 6.802 5.759 5.328 4.772 4.031 10 7.360 6.145 5.650 5.019 4.192 a. Determine the equal annual net cash flows from operating the bulldozer. Jones Excavation Company Equal Annual Net…
A project requires an initial investment in equipment of $760,000 immediately (t=0) and is expected to produce sales revenue of $697, 000 the first year; this revenue will increase by 4.5% per year over the next four years. Manufacturing costs are estimated to be 67% of the sales. The project demand analysis, which was done last year, cost $235,000. The asset can be depreciated on a straight-line basis over five years to a zero salvage value. The corporate tax rate is 36%. The project requires an investment in working capital. Specifically, at the beginning of the project (t=0), $45,000 of working capital is required; thereafter, working capital is projected to be 6.0% of revenue. The investment in working capital will be recovered at the end of the fifth year. At the end of the 5th year, the company plans to sell the equipment for $18,900. To calculate the cost of capital for this project, the firm is going to use the following companies as comparable firms. Beta Debt Equity…
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