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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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:
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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?

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