You are the manager of a large crude oil refinery. As part of the refining process, a certain heat exchanger (operated at high temperatures and with abrasive material flowing through it) must be replaced everyyear. The replacement and downtime cost in the first year is $175,000. This cost is expected to increase due to inflation at a rate of 6% per year for six years (i.e. until the EOY 7), at which time this particular heatexchanger will no longer be needed. If the company's cost of capital is 20% per year, how much could you afford to spend for a higher quality heat exchanger so that these annual replacement and downtimecosts could be eliminated?Click the icon to view the interest and annuity table for discrete compounding when i = 6% per year.Click the icon to view the interest and annuity table for discrete compounding when i = 20% per year.You could afford to spend Sthousands for a higher quality heat exchanger. (Round to one decimal place.)

Present value refers to the current value of an asset taht will be present at some future date…

Answered: be replaced You are the manager of a…

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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Excluding maintenance, all other costs from operating the equipment will be $270 per year. Maintenance costs will be $100 in the first year of operation. As the equipment gets older, some parts will need to be replaced and the replacement will cost an additional $30 each year from year 2 to year 5 what is maintenance costs each year (from year 1 to year 5). ...
The engineering team at Manuel's Manufacturing, Inc., is planning to purchase an enterprise resource planning (ERP) system. The software and installation from Vendor A costs $410,000 initially and is expected to increase revenue $110,000 per year every year. The software and installation from Vendor B costs $290,000 and is expected to increase revenue $95,000 per year. Manuel's uses a 4- year planning horizon and a 12.0% per year MARR. Part a 8 Your answer is incorrect. What is the present worth of each investment? Vendor A: $ Vendor B: $ Carry all interim calculations to 5 decimal places and then round your final answer to the nearest dollar. The tolerance is ±20.
You are the manager of a large crude-oil refinery. As part of the refining process, a certain heat exchanger (operated at high temperatures and with abrasive material flowing through it) must be replaced every year. The replacement and downtime cost in the first year is $165,000. This cost is expected to increase due to inflation at a rate of 9% per year for five years (i.e. until the EOY 6), at which time this particular heat exchanger will no longer be needed. If the company's cost of capital is 18% per year, how much could you afford to spend for a higher quality heat exchanger so that these annual replacement and downtime costs could be eliminated? Click the icon to view the interest and annuity table for discrete compounding when i = 9 % per year. Click the icon to view the interest and annuity table for discrete compounding when i = 18% per year. You could afford to spend $ 694,470.6 thousands for a higher quality heat exchanger. (Round to one decimal place.)
A small company heats its building and spends $8500 per year on natural gas for this purpose. Cost increases of natural gas are expected to be 8% per year starting one year from now (i.e., the first cash flow is $9180 at EOY one). Their maintenance on the gas furnace is $360 per year, and this expense is expected to increase by 15% per year starting one year from now (i.e., the first cash flow for this expense is $414.00 at the EOY one). If the planning horizon is 13 years, what is the total annual equivalent expense for operating and maintaining the furnace? The interest rate is 20% per year.
Two costs for construction of a small, remote mine are for labor and transportation. Labor costs are expected to be $350,000 the first year, with inflation of 6% annually. Unit transportation costs are expected to inflate at 5% annually, but the volume of material being moved changes each year. In Time-0 dollars, the transportation costs are estimated to be $40,000, $60,000, $50,000, and $30,000 in Years 1 through 4. The inflation rate for the value of the dollar is 3%. If the firm uses an i′ of 7%, what is the equivalent annual cost in Time-0 dollars for this 4-year project?
A supermarket can purchase an automated checkout machine for $100,000 (to be paid in year 0) that has an estimated life of 5 years. Servicing and maintenance over that period will begin at $2,500 per annum ( at the end of year 1) and increase at a 10% rate every year. If the checkout machine is purchased, the supermarket will not be required to hire one additional checkout operator. The checkout operator costs $28,000 per year (assume this is also at the end of each year beginning with year 1), and this amount is expected to increase at 5% annually. If the supermarket’s cost of capital is 10%, which alternative should be selected. Assume all annual cashflows occur at the end of each year.
Blackstone Company purchased a new software system costing $35,000. To finance the purchase, Blackstone signed a contract agreeing to pay the cost over the next 8 years, with a payment due every six months; the first payment will be made six months from the date of purchase. Blackstone's usual interest rate is 10%. What is the amount of the payment required (rounded to the nearest dollar)? 's usual 096, What is the amount of the Select one: O a. 16,030 O b. 6,560 O c. 3,229 d. 2,575 e. None of the above
5. Magnum Electronics Company expects a demand of 20,000 units per year for a special-purpose component at the end of the next six years. Net return (profit) per unit is $4. To produce the component, Magnum must buy a machine costing $250,000 with a life of six years and a salvage value of $40,000 after six years. The company estimates that repair costs will be $20,000 per year during the beginning of Years 2 to 6. If Magnum requires a return of investment of 18%, should it market the component? Can only use BA 2 Plus Calculator
The engineering team at Manuel’s Manufacturing, Inc., is planning to purchase an enterprise resource planning (ERP) system. The software and installation from Vendor A costs $380,000 initially and is expected to increase revenue $125,000 per year every year. The software and installation from Vendor B costs $280,000 and is expected to increase revenue $95,000 per year. Manuel’s uses a 4-year planning horizon and a 10% per year MARR. Solve, a. What is the discounted payback period of each investment? b. Which ERP system should Manuel purchase if his decision rule is to select the system with the shortest DPBP?
An industrial laser can be purchased and installed for $90,000$. Assume that the GDS recovery rate is given for the 7-year period. We expect that the laser stays in service for eight years, and we gain $10,000$ from the disposal of it at the end of year eight. The $11,038$ net annual value that can be attributed to this laser is constant over all the eight years. Assume that the effective income tax rate is $0.25$ and the after-tax MARR equals $15%$ per year. What is the ATCF at the end of year six? Consider the depreciation deduction based on the 7-year period GDS recovery rate.
Use an excel spreedsheet to answer this question: The National Potato Cooperative purchased a deskinning machine last year for $150,000. Revenue for the first year was $ 50,000. Over the total estimated life of 8 years, use a spreadsheet to estimate the remaining equivalent annual revenues (years 2 through 8) to ensure breakeven by recovering the investment and a return of 10% per year. Costs are expected to be constant at $42,000 per year and a salvage value of $10,000 is anticipated.
One oil company is considering 5 pipe sizes for a new pipeline. The costs for each of them are given below. Assuming that all the pipelines will last 15 years and that the company's minimum acceptable rate of return (MAAR) is 18% per year, determine which pipe size can be used based on A) present value method and B) incremental rate of return method. Tube size in mm 140 160 200 240 300 Initial inversion $9180 $10510 $13180 $15850 $30530 Installation Cost $600 $800 $1400 $1500 $2000 Annual Cost Opperation $6000 $5800 $5200 $4900 $4800

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