2) A logistics firm is deciding between two models of semi-trailer trucks to add to its fleet. The manager ofthe company has prepared the following information for the economic evaluation of this decision. The newtrucks are to be used for seven years and then sold for the estimated salvage value. The before-tax minimumattractive rate of return of the company is 16.39% per year and the effective tax rate is 39%. Select a machineon the basis of after-tax annual worth analysis using the MACRS general depreciation system.AlternativeInitial InvestmentNet Annual BenefitSalvage valueUseful Life (years)P1$245,000$155,000$44,50010P2$230,000$140,000$37,50010

Alternative 1 Year cash flows Depreciation Profit after tax Profit after tax +…

even years and then sold for the estimated salvage value. the company is 16.39% per year and the effective tax rate nual worth analysis using the MACRS general deprecial Alternative Initial Investment Net Annual Benefit Salvage value Useful Life (years) P1 $245,000 $155,000 $44,500 10 P2 $230,000 $140,000 $37,500 10

even years and then sold for the estimated salvage value. the company is 16.39% per year and the effective tax rate nual worth analysis using the MACRS general deprecial Alternative Initial Investment Net Annual Benefit Salvage value Useful Life (years) P1 $245,000 $155,000 $44,500 10 P2 $230,000 $140,000 $37,500 10

ENGR.ECONOMIC ANALYSIS

14th Edition

ISBN:9780190931919

Author:NEWNAN

Publisher:NEWNAN

Chapter1: Making Economics Decisions

Section: Chapter Questions

Problem 1QTC

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Below are the costs and revenues of 2 alternatives for a machine. When the discount rate is 26.5% per year, determine which alternative is economically viable using the annual value method. 1. Machine 2. Machine Initial investment expense $1,400,000 $1,170,000 Scrap price $280,000 $175,500 First year value of annual operating expense $60,000 $28,000 Annual increase rate of operating expenses %23 %26 Annual revenue $720,000 $630,000 Annual revenue change 8 years fixed, then descending linearly 7 years fixed, then geometricdecreasing Annual reduction rate of revenues or quantity $3,500 -%6 Economic Life 20 years 15 years Below are the costs and revenues of 2 alternatives for a machine. When the discount rate is26.5%per year, determine which alternative is economically viable using the annual value
Two investment projects are being evaluated based on their payback periods. The first alternative requires an initial investment of $340,000, has gross revenues of $61,000, annual O &M costs of $13,000 and a service life of 16 years. What is the project's discounted payback period if the MARR is 8% per year? A. 13.5 years B. 10.9 years C. 7.7 years O D. 6.6 years If the second alternative has a payback period of 6 years, which alternative should be preferred based on the payback period? O A. The second alternative B. The first alternative
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A company is looking to install a new automated system to increase its revenues by $24,000 per year over the next five years. Annual expanses of the system are expected to be $3,400. The system will cost $80,000 and have $5,000 salvage value at the end of the fifth year. If the MARR is 10%, what is the Annual Worth (AW). Select one: O a. $215 O b. $115 O C. $315 O d. $415
a. Calculate using the PW method if the useful life is 50 years and the MARR is 10% per year and determine which is the best alternative.b. If the useful life of project A is 25 years, project B and project C are 50 years each, using the AW method, which project will be selected.attached:Investment: A = $8.500.000B $10.000.000C= $12.000.000O & M annual: A $750.000B = $725.000C = $700.000Salvage value: A = $1.250.000B = $1.750.000CS2.000.000annual benefits: A = $2.150.000B = $2.265.000C = $2.500.000
An engineering alternative has a first cost of $12700, and is expected to have net annuai receipts of $1650 for the next 8 years. Assuming no salvage value at the end of the alternative's life, the amount of AW(0%) is: 1. c$500.00 2. C-$500.00 3. C-$62.50 4. C $62.50 5. C NONE.
A manufacturing company is evaluating an investment plan to produce a new product based on the following estimated data: • Equipment Cost: $150,000 • Overhead Cost: $30,000/year • Sales price: $12/unit Operation cost: $20/operating hour • Production time: O.1 hour/unit • Planning horizon: 4 years • MARR: 15% Salvage value after 4 years: 0 By using break-even analysis, the break-even sales value for the product should be: Select one: a. 6755 units X b. 8255 units C. 9755 units d. 11,255 units The correct answer is: 8255 units
Breakeven Example 8.2 • MARR is 12% per year. Select the more economical vendor bid. -8,000 - 13.000 Initial cost. S -3,500 -1.600 Annual costs, S per year Salvage value. $ Life. vears 2,000 10
1. The first cost of a component is $ 50,000. It will have an annual operating cost of $20,000 and $5,000 salvage value after its 5-year life. At an interest rate of 10% per year, what is the capitalized cost?
A Civil Engineer is considering establishing his own company. An investment of $4,000,000 will berequired, which will be recovered in 15 years.It is estimated that revenue will be $8,000,000 per year and that operating expenses will be as follows:Materials $1,600,000 per yearLabor $2,800,000 per yearOverhead $400,000 + 10% of the yearly revenueOther expenses $600,000 per yearThe engineer will give up his regular job paying $2,160,000 per year and devote his time fulltime to theoperation of the business; this will result in decreasing labor costs by $400,000 per year, material costs by$280,000 per year and overhead cost by $320,000 per year. If the man expects to earn at least 20% ofhis capital, should he invest? NOTE: Use Future Worth Method.
A new machine can be purchased for $50,000. Its expected useful ife is seven years, with a salvage value of $5,000. Annual revenues wil be $22,000 per year and annual expenses will be 8,000 per year, over the seven-year study period. If the MARR is 10%, detemine whether the offer should be accepted. Oa Acceptable and its AW $4257 OD. Acceptable, and its AW -$5,067 Oc Not acceptable and its AW $2,345 Od. Not acceptable and ts AW 53,281