An engineer must decide between two ways to pump concrete to the top of a seven-story building. Plan 1 requires the leasing ofequipment for $60,000 initially and will cost between $0.40 and $0.95 per metric ton to operate, with a most likely cost of $0.50 permetric ton. The pumper can pump 100 metric tons per 8-hour day. If leased, the asset will have a contract period of 5 years. Plan 2 is arental option that will cost $19,000 per year. In addition, an extra $20.5 per hour labor cost will be incurred for operating the rentedequipment per 8-hour day. Which plan should the engineer recommend if the equipment will be needed for 75 days per year? TheMARR is 12% per year.The annual worth of plan 1 lease optimistic is $The annual worth of plan 1 most likely is $The annual worth of plan 1 pessimistic is $The annual worth of plan 2 rental is $Plan 1 lease optimistic is better than rental of plan 2.Plan 1 most likely is better than rental of plan 2.Plan 1 lease pessimistic is better than rental of plan 2.

STEP 1 The length of time they cover is the key distinction between a lease and a rent arrangement.…

Answered: An engineer must decide between two…

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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AD Construction, a property developer, is building a property complex consisting of 50 apartments. Apartments are similar in size and proportion - however, can be adapted to suit client needs. AD Construction enters into a contract with customer B. The client wants to buy an apartment and agrees to a total price of CU100,000 per apartment. The payment schedule is as follows: After signing the contract, clients pay a deposit of CU 10,000 each. Milestone: 1 year before the planned completion, AD Construction will send a progress report to the client and the client will have to pay CU 50,000 each. Completion: After construction is completed, the legal ownership of the apartment is transferred to the client and they pay the remaining amount of CU40,000 each. The assumed construction period is 2 years from the contract date. AD Construction has the right to withhold payment from any client in the event that that client fails to pay for the contract prior to its completion. The contract…
A portable concrete test instrument used in construction for evaluating and profiling concrete surfaces (MACRS-GDS 5-year property class) is under consideration by a construction firm for $ 25,000. The instrument will be used for 6 years and be worth $ 3,000 at that time. The annual cost of use and maintenance will be $ 9,000. Alternatively, a more automated instrument (same property class) available from the manufacturer costs $ 30,500, with use and maintenance costs of only $ 8,000 and salvage value after 6 years of $2,500. The marginal tax rate is 25%, and MARR is an after-tax 12%. Show the AW values used to make your decision:
ABC Corporation has hired you to evaluate a new FOUR year project for the firm. The project will require the purchase of a $824,300.00 work cell. Further, it will cost the firm $55,600.00 to get the work cell delivered and installed. The work cell will be straight-line depreciated to zero with a 20-year useful life. The project will require new employees to be trained at a cost of $55,100.00. The project will also use a piece of equipment the firm already owns. The equipment has been fully depreciated, but has a market value of $6,200.00. Finally, the firm will invest $11,800.00 in net working capital to ensure the project has sufficient resources to be successful. The project will generate annual sales of $917,000.00 with expenses estimated at 40.00% of sales. Net working capital will be held constant throughout the project. The tax rate is 37.00%. The work cell is estimated to have a market value of $499,000.00 at the end of the fourth year. The firm expects to reclaim 82.00% of the…
ABC Corporation has hired you to evaluate a new FOUR year project for the firm. The project will require the purchase of a $823,400.00 work cell. Further, it will cost the firm $55,600.00 to get the work cell delivered and installed. The work cell will be straight-line depreciated to zero with a 20-year useful life. The project will require new employees to be trained at a cost of $68,600.00. The project will also use a piece of equipment the firm already owns. The equipment has been fully depreciated, but has a market value of $7,100.00. Finally, the firm will invest $11,400.00 in net working capital to ensure the project has sufficient resources to be successful. The project will generate annual sales of $905,000.00 with expenses estimated at 37.00% of sales. Net working capital will be held constant throughout the project. The tax rate is 38.00%. The work cell is estimated to have a market value of $493,000.00 at the end of the fourth year. The firm expects to reclaim 86.00% of the…
Rahul
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ABC Corporation has hired you to evaluate a new FOUR year project for the firm. The project will require the purchase of a $843,200.00 work cell. Further, it will cost the firm $51,700.00 to get the work cell delivered and installed. The work cell will be straight-line depreciated to zero with a 20-year useful life. The project will require new employees to be trained at a cost of $59,100.00. The project will also use a piece of equipment the firm already owns. The equipment has been fully depreciated, but has a market value of $5,200.00. Finally, the firm will invest $10,800.00 in net working capital to ensure the project has sufficient resources to be successful. The project will generate annual sales of $917,000.00 with expenses estimated at 38.00% of sales. Net working capital will be held constant throughout the project. The tax rate is 40.00%. The work cell is estimated to have a market value of $489,000.00 at the end of the fourth year. The firm expects to reclaim 85.00% of the…
A new solid waste treatment plant is to be constructed in Washington County. The initial installation will cost $35 million (M). After 10 years, minor repair and renovation (R&R) will occur at a cost of $14M will be required; after 20 years, a major R&R costing $20M will be required. The investment pattern will repeat every 20 years. Each year during the 20-year period, operating and maintenance (O&M) costs will occur. The first year, O&M costs will total $2M. Thereafter, O&M costs will increase at a compound rate of 4% per year. Based on a 4% MARR, what is the capitalized cost for the solid waste treatment plant?
A mechanical engineer must recommend a new heating system to a commercial building owner. The owner intends to sell the building in 15 years. A gas fired furnace option has a design life of 5 years, an initial cost of $12,000, a replacement cost of $6,000 and annual operating costs of $3,500, but adds no value to the building when sold. A geothermal heat pump system has a design life of 10 years, an initial cost of $16,000, a replacement cost of $9,000, annual operating costs of $2,500, and increases the value of the building by $7,000, when it is sold at the end of year 15. Determine the equivalent uniform annual cost (EUAC) of costs for the option the engineer should recommend at an interest rate of 6.3%. Express your answer in $ to the nearest $10.
Oregon Machinery Company (OMC) has decided to acquire a screw machine. One alternative is to lease the machine on a three-year contract for a lease payment of $22,000 per year with payments to be made at the beginning of each year. The lease would include maintenance. The second alternative is to purchase the machine outright for $97,000, financing the investment with a bank loan for the net purchase price and amortizing the loan over a three-year period at an interest rate of 12% per year (annual payment = $40, 386). Under the borrow-to-purchase arrangement, the company would have to maintain the machine at an annual cost of $6,000, payable at year-end. The machine falls into the seven-year MACRS classification, and it has a salvage value of $45,000, which is the expected market value at the end of year 3. After three years, the company plans to replace the machine regardless of whether it leases or buys. The tax rate is 40%, and the MARR is 15%.(a) What is OMC's PW cost of…
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
Briggs Excavation Company is planning an investment of $932,100 for a bulldozer. The bulldozer is expected to operate for 3,000 hours per year for eight years. Customers will be charged $140 per hour for bulldozer work. The bulldozer operator costs $32 per hour in wages and benefits. The bulldozer is expected to require annual maintenance costing $30,000. The bulldozer uses fuel that is expected to cost $42 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 3.352 2.991 6 4.917 4.355 4.111 3.784 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. Use a minus sign to indicate cash outflows.…

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