Consider the following altematives for a heating system: Alternative A: Rent a heating system at a cost of $500 per year over a 10-year period. Installation charge of $300 and no salvage value. If is expected to provide energy savings of $300 per year. Alternative B: Purchase a heating system for a total cost of $3,600, including installation. It has a salvage value of $1000 after 10 years of service, and is expected to provide energy savings of $500 per year. Alternative C: Purchase a heating system for a total cost of $8,000, including installation. Half of the cost is paid now and the other half is paid at the end of three years. It has a saive value of $1,000 after 10 years and is expected to provide energy savings of $1.000 pear. For a MARR of 12%, which heating system should be installed?

Consider the following altematives for a heating system: Alternative A: Rent a heating system at a cost of $500 per year over a 10-year period. Installation charge of $300 and no salvage value. If is expected to provide energy savings of $300 per year. Alternative B: Purchase a heating system for a total cost of $3,600, including installation. It has a salvage value of $1000 after 10 years of service, and is expected to provide energy savings of $500 per year. Alternative C: Purchase a heating system for a total cost of $8,000, including installation. Half of the cost is paid now and the other half is paid at the end of three years. It has a saive value of $1,000 after 10 years and is expected to provide energy savings of $1.000 pear. For a MARR of 12%, which heating system should be installed?

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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Use Annual Worth method to calculate the benefit/cost ratio at i = 6% for a new library. The first cost is $500K, and O&M costs are $100K per year. There is no salvage value after 30 years. Community benefits are estimated to be $130K per year. Is the library economically justified? Write a brief interpretation of your answer
Alternative R has a first cost of $85,000, annual M&O costs of $60,000, and a $20,000 salvage value after 5 years. Alternative S has a first cost of $175,000 and a $55,000 salvage value after 5 years, but its annual M&O costs are not known. Determine the M&O costs for alternative S that would yield a required incremental rate of return of 25.00% The M&O cost for alternative S is $
Two 100 horsepower motors are being considered for use: If power costs $0.10 per kWh, and if the interest rate is 12%, how many hours of operation per year is required to justify the purchase of XYZ brand motor? (1 hp = 0.746 kW). Which motor would you select if the motor is expected to operate 2,000 hours per year? Explain why.
A truck can be purchased for $55,000. Annual O&M costs are expected to increase by $1,800 every year, with a 1st-year O&M cost of $4,000. (MARR = 26% and the planning horizon is 10 years) • The compressor salvage value for a given period t is calculated based on the following equation: Salvage value (t) = $30,000– $3,000 * t a) Find the Optimum Replacement Interval for this Equipment b) Find the Optimum Replacement Interval for this Equipment if the O&M costs are decreased to $1,700/yr. What is your conclusion? c) Find the Optimum Replacement Interval for this Equipment if the initial cost is reduced to $52,000. What is your conclusion? (independent of part b)
A "standard" model of a dozer costs $20,000 and has an annual operating expense of $450. The dozer will be replaced in 6 years when the salvage value is expected to be $2,000. A "super" model can be purchased for $25,000, but will have a salvage value of $7,000 when retired in 6 years. Its operating expenses are also $450 a year. The purchaser's other investment opportunities are 5%. Compare these alternatives by using the annual equivalent method.
Assume that a company is considering purchasing a machine for $50,500 that will have a five-year useful life and no salvage value. The machine will lower operating costs by $17,000 per year. The company's required rate of return is 18%. The profitability index for this investment is closest to: Click here to view Exhibit 12B-1 and Exhibit 12B-2, to determine the appropriate discount factor(s) using the tables provided. Multiple Choice O 0.95. 1.01. 1.05. 1.11.
Consider the following investment in a piece of land. Purchase price 500,000 Annual maintenance: 5,000 Expected sale price after 8 years: 1,000,000. Determine a) The rate of return (to 1/100 percent) and b) What is the lowest sale price the investor should accept if she wishes to earn a return of 10% after keeping the land for 10 years? Show complete solution pls. No excel computation
Consider a piece of industrial equipment that has an installed cost of $ 100,000. The equipment is expected to generate $30,000 worth of annual energy saving during its 1st year of installation. The value of these annual savings is expected to increased at the rate at 5% per year because of increased fuel costs. Assumes that the equipment has a service life of 5 years ( or 3000 operating hrs per year) with no appreciable salvage value. Determine the equivalent and savings per each operating hours at i=14%.
A replacement electric motor is being considered for purchase. It is capable of providing 200 hp. The pertinent data are follows: Cost - 3200 dollars Maintenance Cost per year - 50 dollars Life expectancy - 14years Salvage value after - 1,429.93 dollars The motor is used for 400 h/year and the cost of electricity is 0.0 dollars/kWh. What is most nearly the effective annual cost using an interest rate of 10%
Assume that a company is considering purchasing a machine for $50,500 that will have a five-year useful life and no salvage value. The machine will lower operating costs by $17,000 per year. The company's required rate of return is 18%. The profitability index for this investment is closest to: Click here to view Exhibit 14B-1 and Exhibit 14B-2, to determine the appropriate discount factor(s) using the tables provided. Multiple Choice C O 0.95. 1.01. 1.05. 1.11.
.A P2500 computer system can be leased for 79 per month for 3 years. After 3 years, it can be purchased for P750. This is also the salvage value if the system was purchased originally. What is the effective annual rate for leasing the computer?
Solve for the rate of return and Explain

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