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). ...
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 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.
The cost for manufacturing a component used in intelligent interface converters was $23,000 the first year. The company expects the cost to increase by 2% each year. Calculate the present worth of this cost over a five-year period at an interest rate of 10% per year.
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
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.
A marketing company intends to 0 distribute a new product. It is expected to produce net returns of $17,000 per year for the first four yoars and $13,000 per year for the following throe yoars Tha faciltios roquirodto distribute the product will cost $70,000 with a disposal value of $9,000 after seven years. The facilities will require a major facelift costing $10,000 each after three years and after five years. If the companyrequires a return on investment of 10%, should the company distribute the new product?

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