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Angle Iron (AI), Inc. just purchased a new angle bending machine for foundation bases of their storag tank division. The company expects to bend 3,000 beams at $100 dollars a beam revenue in each of the first 2 years while it is learning how to use the equipment. After this 24-month run-in period, it anticipate capabilities to bend 6,000 beams at $150 dollars a beam revenue for the next 8 years before it will ther have to replace the equipment or vacate the product line. Assume that the MARR is 15% per year. a. Draw and label the cash flow diagram b. What is the present worth of the expected angle iron revenue? fo c. If AI purchased this equipment new for $1 Million Dollars; what was the pay-back period in years this investment. (Hint: Find the equivalent annual worth for use in determining)

Angle Iron (AI), Inc. just purchased a new angle bending machine for foundation bases of their storag tank division. The company expects to bend 3,000 beams at $100 dollars a beam revenue in each of the first 2 years while it is learning how to use the equipment. After this 24-month run-in period, it anticipate capabilities to bend 6,000 beams at $150 dollars a beam revenue for the next 8 years before it will ther have to replace the equipment or vacate the product line. Assume that the MARR is 15% per year. a. Draw and label the cash flow diagram b. What is the present worth of the expected angle iron revenue? fo c. If AI purchased this equipment new for $1 Million Dollars; what was the pay-back period in years this investment. (Hint: Find the equivalent annual worth for use in determining)

Practical Management Science
Practical Management Science
6th Edition
ISBN:9781337406659
Author:WINSTON, Wayne L.
Publisher:WINSTON, Wayne L.
Chapter2: Introduction To Spreadsheet Modeling
Section: Chapter Questions
Problem 20P: Julie James is opening a lemonade stand. She believes the fixed cost per week of running the stand...
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**Angle Iron (AI), Inc. Investment Analysis** Angle Iron (AI), Inc. recently acquired a new angle bending machine for its storage tank division's foundation bases. Initially, for the first two years, the company plans to bend 3,000 beams at a revenue of $100 per beam while learning to operate the equipment. Following this initial two-year period, AI expects to enhance its production capacity to bend 6,000 beams at $150 per beam annually for the subsequent eight years. After this period, the company will evaluate whether to replace the equipment or discontinue the product line. The Minimum Acceptable Rate of Return (MARR) is assumed to be 15% per year. **Key Points for Consideration:** a. **Cash Flow Diagram**: Visualize and label the timeline of cash flows over the ten-year period, indicating the revenue streams and the initial equipment investment. b. **Present Worth Calculation**: Determine the present worth of the anticipated revenue generated from the angle iron production, using the given MARR. c. **Pay-back Period Analysis**: Calculating the time required for AI to recover its investment of $1 million in the equipment. Use the equivalent annual worth approach for this calculation.
Transcribed Image Text:**Angle Iron (AI), Inc. Investment Analysis** Angle Iron (AI), Inc. recently acquired a new angle bending machine for its storage tank division's foundation bases. Initially, for the first two years, the company plans to bend 3,000 beams at a revenue of $100 per beam while learning to operate the equipment. Following this initial two-year period, AI expects to enhance its production capacity to bend 6,000 beams at $150 per beam annually for the subsequent eight years. After this period, the company will evaluate whether to replace the equipment or discontinue the product line. The Minimum Acceptable Rate of Return (MARR) is assumed to be 15% per year. **Key Points for Consideration:** a. **Cash Flow Diagram**: Visualize and label the timeline of cash flows over the ten-year period, indicating the revenue streams and the initial equipment investment. b. **Present Worth Calculation**: Determine the present worth of the anticipated revenue generated from the angle iron production, using the given MARR. c. **Pay-back Period Analysis**: Calculating the time required for AI to recover its investment of $1 million in the equipment. Use the equivalent annual worth approach for this calculation.
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