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Assume that two pieces of equipment have the following characteristics: Expected life (years) Equlpment Initlal cost Operating cost per year A 9 $20,000 $10,000 B 5 25,000 8,000 Using a hurdle rate of 0.10, which equipment is the more desirable?

Assume that two pieces of equipment have the following characteristics: Expected life (years) Equlpment Initlal cost Operating cost per year A 9 $20,000 $10,000 B 5 25,000 8,000 Using a hurdle rate of 0.10, which equipment is the more desirable?

FINANCIAL ACCOUNTING
FINANCIAL ACCOUNTING
10th Edition
ISBN:9781259964947
Author:Libby
Publisher:Libby
Chapter1: Financial Statements And Business Decisions
Section: Chapter Questions
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CH 5 #5 Assume that two pieces of equipment have the following characteristics:

 

Using a hurdle rate of 0.10, which equipment is the more desirable?

A Week 3 Assignment 1 VitalSource Bookshelf: The Cap x O Mail - outlook 8E6AAB8B8EB6 x G It has been said that few stockl x b My Questions | bartleby + X A online.vitalsource.com/#/books/9781135656232/cfi/6/26!/4/186/24/8/4@0:0 vears a < 5. Annual Equivalent ... years. Which model should be purchased if the hurdle rate is 0.05? 5. Assume that two pieces of equipment have the following characteristics: Go to 5. Annual Equivalent Costs and Replacement Decisions Initlal cost Expected life (years) Equipment Operating cost per year A 9 $20,000 $10,000 A perpetuity B 25,000 8,000 Using a hurdle rate of 0.10, which equipment is the more desirable? 6. The A Corporation's computer currently has excess capacity. The controller would like to prepare and distribute a report that would take approximately one hour a day of the computer's time. The computer could do this task and still have excess capacity. The annual cost of this type of computer is $1 million. The hurdle rate for this project is 0.05. The long-range planning group estimates that without the report the corporation would be shifting to a more powerful computer five years from now. With the report, it estimates the shift to be four years from now. The new computer will cost $1.5 million per year. Assume that the computer payments take place at the end of each year. What is your estimate of the cost of adding the report? 7. The New York State Utility Company is considering the construction of a new utility plant. It has accumulated the following cost information: Components of unequal lives Cost of excess capacity The equal cost assumption The replacement decision Item Fossil plant (oil and gas) Nuclear plant Initial outlay $100,000,000 20,000,000 $60,000,000 Replacement chains Annual operating cost 15,000,000 Conclusions Note a This is the projected cost for year 1. It is expected that the operating costs of the nuclear plant will decrease by $2,000,000 per year and level off at $10,000,000. The expected decrease is a result of decreased fuel costs. Both plants have an expected useful life of 50 years. Review problem Assume the hurdle rate for this project is 0.05 per year. Problems a. Which plant should be built? b. Assume that if the nuclear plant is not built the needed electricity can be purchased at a cost of $16 million per year. Should it be built? Solution to review problem We've updated our read aloud feature! Give it a try here. 8. Assume that the cost of the needed electricity in problem 7 is $17 million. Bibliography a. Should the nuclear plant be built? Aa 4) 10:21 PM P Type here to search a 10/6/2020 近 !
Transcribed Image Text:A Week 3 Assignment 1 VitalSource Bookshelf: The Cap x O Mail - outlook 8E6AAB8B8EB6 x G It has been said that few stockl x b My Questions | bartleby + X A online.vitalsource.com/#/books/9781135656232/cfi/6/26!/4/186/24/8/4@0:0 vears a < 5. Annual Equivalent ... years. Which model should be purchased if the hurdle rate is 0.05? 5. Assume that two pieces of equipment have the following characteristics: Go to 5. Annual Equivalent Costs and Replacement Decisions Initlal cost Expected life (years) Equipment Operating cost per year A 9 $20,000 $10,000 A perpetuity B 25,000 8,000 Using a hurdle rate of 0.10, which equipment is the more desirable? 6. The A Corporation's computer currently has excess capacity. The controller would like to prepare and distribute a report that would take approximately one hour a day of the computer's time. The computer could do this task and still have excess capacity. The annual cost of this type of computer is $1 million. The hurdle rate for this project is 0.05. The long-range planning group estimates that without the report the corporation would be shifting to a more powerful computer five years from now. With the report, it estimates the shift to be four years from now. The new computer will cost $1.5 million per year. Assume that the computer payments take place at the end of each year. What is your estimate of the cost of adding the report? 7. The New York State Utility Company is considering the construction of a new utility plant. It has accumulated the following cost information: Components of unequal lives Cost of excess capacity The equal cost assumption The replacement decision Item Fossil plant (oil and gas) Nuclear plant Initial outlay $100,000,000 20,000,000 $60,000,000 Replacement chains Annual operating cost 15,000,000 Conclusions Note a This is the projected cost for year 1. It is expected that the operating costs of the nuclear plant will decrease by $2,000,000 per year and level off at $10,000,000. The expected decrease is a result of decreased fuel costs. Both plants have an expected useful life of 50 years. Review problem Assume the hurdle rate for this project is 0.05 per year. Problems a. Which plant should be built? b. Assume that if the nuclear plant is not built the needed electricity can be purchased at a cost of $16 million per year. Should it be built? Solution to review problem We've updated our read aloud feature! Give it a try here. 8. Assume that the cost of the needed electricity in problem 7 is $17 million. Bibliography a. Should the nuclear plant be built? Aa 4) 10:21 PM P Type here to search a 10/6/2020 近 !
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