Aerotron Electronics is considering purchasing a water filtration system to assist in circuit board manufacturing. The system costs $39,000. It has an expected life of 7 years at which time its salvage value will be $6,000. Operating and maintenance expenses are estimated to be $2,000 per year. If the filtration system is not purchased, Aerotron Electronics will have to pay Bay City $15,000 per year for water purification. If the system is purchased, no water purification from Bay City will be needed. Aerotron Electronics must borrow 1/2 of the purchase price, but they cannot start repaying the loan for 2 years. The bank has agreed to 3 equal annual payments, with the 1st payment due at the end of year 2. The loan interest rate is 9.5 % compounded annually. Aerotron Electronics' MARR is 11.0 % compounded annually.

Aerotron Electronics is considering purchasing a water filtration system to assist in circuit board manufacturing. The system costs $39,000. It has an expected life of 7 years at which time its salvage value will be $6,000. Operating and maintenance expenses are estimated to be $2,000 per year. If the filtration system is not purchased, Aerotron Electronics will have to pay Bay City $15,000 per year for water purification. If the system is purchased, no water purification from Bay City will be needed. Aerotron Electronics must borrow 1/2 of the purchase price, but they cannot start repaying the loan for 2 years. The bank has agreed to 3 equal annual payments, with the 1st payment due at the end of year 2. The loan interest rate is 9.5 % compounded annually. Aerotron Electronics' MARR is 11.0 % compounded annually.

ENGR.ECONOMIC ANALYSIS

14th Edition

ISBN:9780190931919

Author:NEWNAN

Publisher:NEWNAN

Chapter1: Making Economics Decisions

Section: Chapter Questions

Problem 1QTC

See similar textbooks

Similar questions

Show Full Solution please.A construction contractor has three options to purchase a dump truck for transportation and dumping of soil at a construction site. All the alternatives have the same useful life. The cash flow details of all the alternatives are provided as follows; Option-1: Initial purchase price = P2,500,000Annual operating cost P450,00 at the end of 1st year and increasing by P3,000 in the subsequent years till the end of useful life, Annual income = P120,000, Salvage value = P550,000, Useful life = 10 years. Option-2: Initial purchase price = P3,000,000, Annual operating cost = P30,000, Annual income P150,000 for first three years and increasing by P5,000 in the subsequent years till the end of useful life, Salvage value = P800,000, Useful life = 10 years. Option-3: Initial purchase price = P2,700,000, Annual operating cost P35,000 for first 5 years and increasing by P2,000 in the successive years till the end of useful life, Annual income = P140,000, Expected salvage…
Hospital is evaluating the purchase of new office equipment from three vendors. Assume MARR=15% and 4 year useful life on all equipment. Select best vendor. What is the best vendor?
Question 5 The second, Van Y, has a useful life of 10 years and will cost you $33,000 in Year 0. You expect it to earn the same additional $8,000 per year in profit, and have a salvage value of $5,000 at the end of Year 10. Using the coterminated assumptions and a study period of 15 years, what is the Future Worth of Van Y? Assume that you reinvest all cash flows at the MARR after the end of the useful life of the van. Typed numeric answer will be automatically saved.
. A construction company is considering two possibilities for warehouse operations. Proposal 1 would require the purchase of a forklift for $5,000 and 500 pallets that cost $5 each. The average life of a pallet is assumed to be 2 years. If the forklift is purchased, the company must hire an operator for $9,000 annually and spend $600 per year on maintenance and operation. The life of the forklift is expected to be 12 years with a $700 salvage value. Alternatively, proposal 2 requires that the company hire 2 men to operate power driven hand trucks at a cost of $7,500 per man. One hand truck will be required at a cost of $900. The hand truck will have a life of 6 years with no salvage value. If the company's minimum attractive rate of return is 12%, which alternative should be selected? Use the annual equivalent method.
Galvanized Products is considering the purchase of a new computer system for their enterprise data management system. The vendor has quoted a purchase price of $80,000. Galvanized Products is planning to borrow 1/4th of the purchase price from a bank at 19% compounded annually. The loan is to be repaid using equal annual payments over a 3-year period. The computer system is expected to last 5 years and has a salvage value of $7,000 at that time. Over the 5-year period, Galvanized Products expects to pay a technician $29,000 per year to maintain the system but will save $58,000 per year through increased efficiencies. Galvanized Products uses a MARR of 17%/year to evaluate investments. What is the external rate of return of this investment?
An old, heavily used warehouse currently has an incandescent lighting system. The lights run essentially 24 hr / d * a * y , 365days / y * r and draw about 10 kW of power. Consideration is be ing given to replacing these lights with fluorescent lights to save on electricity. It is estimated that the same level of lighting can be achieved with 4.5 kW of fluorescent lights. Re placement of the lights will cost about $11,000. Bulb replacement and other maintenance are not expected to be significantly different. Electricity for the lights currently costs \$0.045/kWh . The warehouse is scheduled for de molition in five years to make way for a more modern facility . The company has a MARR of 15%. Should the company replace the incandescent lights with fluorescent lights? State any assumptions you make.
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?
Problem 06.010 Annual worth and capital recovery calculations U.S. Steel is considering a plant expansion to produce austenitic, precipitation hardened, duplex, and martensitic stainless steel round bars that is expected to cost $17.00 million now and another $10 million 1 year from now. If total operating costs will be $1.800 million per year starting 1 year from now, and the estimated salvage value of the plant is virtually zero, how much must the company make annually in years 1 through 10.00 to recover its investment plus a return of 18.00% per year? (Round the final answer to three decimal places.) The company must make $ million annually in years 1 through 10.00 to recover its investment plus a return of 18.00% per year.
An equipment costing $57,500 is being considered for a production process at Dewey Chemicals. The expected benefits per year is $4,500 and estimated salvage value is $10,000. Determine the rate of return the company can get in this equipment proposal. Equipment life = 15 years.
An in place machine has an equivalent annual worth of $-100000 for each year of its maximum remaining useful life of two years. A suitable replacement is determined to have equivalent annual worth values of $-175000, $-125000, and $-150000 per year if kept for 1,2, or 3 years, respectively. When should the company replace the machine, if it uses a fixed 3-year planning horizon? Use an interest rate of 17.255609824% per year compounded semiannualy.
You have decided to open a microbrewery selling university-themed beers as one of your product lines. You need to conduct a breakeven analysis of sales and price. You know your fixed costs but based on your marketing plan you are not sure of pricing and sales. Your company MARR is 5%, and fixed costs include an initial capital investment of $250,000 with fixed annual expenses of $100,000. Use a 5-year planning horizon and assume that these expenses will not grow with inflation. a. Draw the cash flow diagram. b. Populate the following table and plot the NPW results in a meaningful plot. (Make sure you label your axis, and your plot should contain three curves.) c. Make a pricing recommendation as a function of sales. You would like to make a minimum of $100,000 for your work on this project.
Please provide handwritten solutions.