An oil refinery finds that it is necessary to treat the waste liquids from a new process before discharging them into a stream. The treatment will cost $20,000 the first year, but process improvements will allow the costs to decline by $2,000 each year. As an alternative, an outside company will process the wastes for the fixed price of $10,000/year throughout the 9 year period, payable at the beginning of each year. Either way, there is no need to treat the wastes after 9 years. Use the annual worth method to determine how the wastes should be processed. The company's MARR is 10%.

An oil refinery finds that it is necessary to treat the waste liquids from a new process before discharging them into a stream. The treatment will cost $20,000 the first year, but process improvements will allow the costs to decline by $2,000 each year. As an alternative, an outside company will process the wastes for the fixed price of $10,000/year throughout the 9 year period, payable at the beginning of each year. Either way, there is no need to treat the wastes after 9 years. Use the annual worth method to determine how the wastes should be processed. The company's MARR is 10%.

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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Arnold Inc. is considering a proposal to manufacture high-end protein bars used as food supplements by body builders. The project requires use of an existing warehouse, which the firm acquired three years ago for $4 million and which it currently rents out for $121,000. Rental rates are not expected to change going forward. In addition to using the warehouse, the project requires an upfront investment into machines and other equipment of $ 1.4 million. This investment can be fully depreciated straight-line over the next 10 years for tax purposes. However, Arnold Inc. expects to terminate the project at the end of eight years and to sell the machines and equipment for $474,000. Finally, the project requires an initial investment into net working capital equal to 10% of predicted first-year sales. Subsequently, net working capital is 10% of the predicted sales over the following year. Sales of protein bars are expected to be $4.6 million in the first year and to stay constant…
A company has decided to replace its inspection machine with an advanced one. The advanced machine costs $15,000 and will have operating costs of $3,600 in the first year, increasing by $2,000 per year thereafter. The expected salvage value of the new machine is $6,000 at the end of the first year and will decline by 10% of the preceding S.V. each year. Find the missing values in the following table and determine the economic life of the new machine. Total Cost (8%) CR (8%) OC (8%) 3,600 1 10,200 13,800 2 ? ? ... .... .. 3 4332.36 5,495.82 ? 4 ? 6,406.46 ? .......... . 3086.31 7,293.42 10,379.73 OPTIMAL n = A+ta ch Cilo
Crane Lumber, Inc., is considering purchasing a new wood saw that costs $80,000. The saw will generate revenues of $100,000 per year for five years. The cost of materials and labor needed to generate these revenues will total $60,000 per year, and other cash expenses will be $10,000 per year. The machine is expected to sell for $2,700 at the end of its five-year life and will be depreciated on a straight-line basis over five years to zero. Crane’s tax rate is 26 percent, and its opportunity cost of capital is 17.60 percent.
An oil refinery finds that it is necessary to treat the waste liquids from a new process before discharging them into a stream. The treatment will cost $30,000 the first year, but process improvements will allow the costs alternative, an outside company will process the wastes for the fixed price of $15,000/year throughout the 15 year period, payable at the beginning of each year. Either way, there is no need to treat the wastes after 15 years. Use the annual worth method to determine how the wastes should be processed. The company's MARR is 12%. decline by $3,000 each year. As an Click the icon to view the interest and annuity table for discrete compounding when the MARR is 12% per year. The AW of the in-house treatment is S (Round to the nearest dollar) The AW of the outside treatment is S (Round to the nearest dollar.) The processing is the most economical alternative
The plant manager asked you to do a cost analysis to determine when currently owned equipment should be replaced. The manager stated that under no circumstances will the existing equipment be retained longer than two more years It can be replaced any year with an outside contractor at a cost of $97,000 per year. The market value of the currently owned equipment is estimated to be $37,000 now, $30,000 in one year, and $19,000 two yearsfrom now. The operating cost is $85,000 per year. Using an interest rate of 10% per year, determine when the defending equipment should be retired.
The Ocean City water park is considering the purchase of a new log flume ride. The cost to purchase the equipment is $8,000,000, and it will cost an additional $475,000 to have it installed. The equipment has an expected life of 6 years, and it will be depreciated using a MACRS 7-year class life. Management expects to run about 150 rides per day, with each ride averaging 35 riders. The season will last for 120 days per year. In the first year, the ticket price per rider is expected to be $5.25, and it will be increased by 4% per year. The variable cost per rider will be $1.65, and total fixed costs will be $525,000 per year. After six years, the ride will be dismantled at a cost of $245,000 and the parts will be sold for $600,000. The cost of capital is 8.5%, and its marginal tax rate is 25%. Calculate the NPV, IRR, and MIRR of the new equipment. Is the project acceptable?
Crane Lumber, Inc., is considering purchasing a new wood saw that costs $40,000. The saw will generate revenues of $100,000 per year for five years. The cost of materials and labor needed to generate these revenues will total $60,000 per year, and other cash expenses will be $10,000 per year. The machine is expected to sell for $3,900 at the end of its five-year life and will be depreciated on a straight-line basis over five years to zero. Crane’s tax rate is 26 percent, and its opportunity cost of capital is 14.20 percent. What is the project's NPV? (Do not round intermediate calculations. Round final answer to the nearest whole dollar, e.g. 5,275.)
Direct Energy has two options for upgrading a natural gas power station to meet new government standards.Option 1: Direct Energy will make the upgrades themselves. This is expected to cost $12,000 at the end of every three months for 14 years. At the end of the operation (in 14 years) Direct Energy expects to sell all equipment needed for the upgrade for $105,000.Option 2: Pay experienced contractors. This will cost $39,000 up front and $14,200 quarterly for 10 years.Assume all interest is 2.33% compounded quarterly. Round the answers to NPV (Option 1), and NPV (Option 2) to the nearest dollar. Round all other answers to two decimal places where applicable. 1) Find the net present value of option 1: Payments (Cost) Sale of equipment (Residual) P/Y = C/Y = N = I/Y = % % PV = $ $ PMT = $ $ FV = $ $ (If the NPV is negative, enter it as a negative number. If the NPV is zero, enter 0.) NPV (Option 1) = $2) Find the net present value of option 2:…
A remotely located air sampling station can be powered by solar cells or by running an above ground electric line to the site and using conventional power. Solar cells will cost $17,400 to install and will have a useful life of 5 years with no salvage value. Annual costs for inspection, cleaning, and other maintenance issues are expected to be $2,100. A new power line will cost $26,000 to install, with power costs expected to be $1,000 per year. Since the air sampling project will end in 5 years, the salvage value of the line is considered to be zero. NOTE: This is a multi-part question. Once an answer is submitted, you will be unable to return to this part.At an interest rate of 10% per year and using an AW analysis, which alternative should be selected? The annual worth of installing solar cells is $− , and the annual worth of installing a new power line is $− . The alternative to be selected is .
Esteez Construction Company has an overhead crane that has an estimated remaining life of 7 years. The crane can be sold for $14,000. If the crane is kept in service it must be overhauled immediately at a cost of $6,000.Operating and maintenance costs will be $5,000/year after the crane is overhauled. After overhauling it, the crane will have a zero salvage value at the end of the 7-year period. A new crane will cost $36,000, will last for 7 years, and will have an $8,000 salvage value at that time. Operating and maintenance costs are $2,500 for the new crane. Esteez uses an interest rate of 15% in evaluating investment alternatives. Should the company buy the new crane based upon an annual cost analysis? Solve, a. Use the cash flow approach. b. Use the opportunity cost approach.
A grape producer is studying the possibility of installing an irrigation system on his property. He estimates that he will have to pay $60,000 for the purchase and installation of the equipment. The system has a very long lifespan that can be considered infinite. However, the supplier informed that the owner must carry out a general overhaul of the entire system every five years, indefinitely, to keep it in ideal operating conditions without compromising its efficiency. And, each revision is estimated to cost $5,000. For an interest rate of 12% per annum. What is the total value of the investment, at present value, to be made by the entrepreneur in the project?
The Ocean City water park is considering the purchase of a new log flume ride. The cost to purchase the equipment is $8,000,000, and it will cost an additional $475,000 to have it installed. The equipment has an expected life of 6 years, and it will be depreciated using a MACRS 7-year class life. Management expects to run about 150 rides per day, with each ride averaging 35 riders. The season will last for 120 days per year. In the first year, the ticket price per rider is expected to be $5.25, and it will be increased by 4% per year. The variable cost per rider will be $1.65, and total fixed costs will be $525,000 per year. After six years, the ride will be dismantled at a cost of $245,000 and the parts will be sold for $600,000. The cost of capital is 8.5%, and its marginal tax rate is 25%. a. Calculate the initial outlay, annual after-tax cash flow for each year, and the terminal cash flow.

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