hi, could u explain how to solve plan Bthx AEXAMPLE: Evaluating Alternatives by Annual Worth AnalysisThree plans are considered for an engineering design problem:Plan A: purchase an equipment at $650,000 with a 10 year lifetime and a $17,000 salvagevalue. Equipment annual operating cost is $50,000 while the annual cost of a controlprogram is $120,000Plan B: Initial cost is $4 million, annual maintenance cost is $5,000, repairs occurs every 5years at $30,000. However, this plan provides a permanent solutionPlan C: Initial cost is $6 million and the annual maintenance cost is $3,000 with a lifetimeof 50 years, Assume i = 5%We need to compute AW for each plan for one cyclePlan A:.CR=-650,000(A/P,5%, 10) + 17,000(A/F,5%, 10) = $ -82,824A₁ = -50,000 and A₂ = -120,000AW₁= -82,824 + (-50,000) + (-120,000) = $-252,824Plan B:CR-4,000,000x5% = $-200,000A = $-5,000Repair cost = -30,000(A/F,5%,5) = $-5,429AWR-200,000+ (-5,000) + (-5,429) = $-210,429MY

The annual equivalent cost is that cost which is equivalent to all cost that are going to occur…

EXAMPLE: Evaluating Alternal Three plans are considered for an engineering design problem: Plan A: purchase an equipment at $650,000 with a 10 year lifetime and a $17,000 salva value. Equipment annual operating cost is $50,000 while the annual cost of a control program is $120,000 Plan B: Initial cost is $4 million, annual maintenance cost is $5,000, repairs occurs ev years at $30,000. However, this plan provides a permanent solution Plan C: Initial cost is $6 million and the annual maintenance cost is $3,000 with a life of 50 years, Assume i = 5% We need to compute AW for each plan for one cycle وعی .

EXAMPLE: Evaluating Alternal Three plans are considered for an engineering design problem: Plan A: purchase an equipment at $650,000 with a 10 year lifetime and a $17,000 salva value. Equipment annual operating cost is $50,000 while the annual cost of a control program is $120,000 Plan B: Initial cost is $4 million, annual maintenance cost is $5,000, repairs occurs ev years at $30,000. However, this plan provides a permanent solution Plan C: Initial cost is $6 million and the annual maintenance cost is $3,000 with a life of 50 years, Assume i = 5% We need to compute AW for each plan for one cycle وعی .

EBK CONTEMPORARY FINANCIAL MANAGEMENT

14th Edition

ISBN:9781337514835

Author:MOYER

Publisher:MOYER

Chapter9: Capital Budgeting And Cash Flow Analysis

Section: Chapter Questions

Problem 15P

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Gina Ripley, president of Dearing Company, is considering the purchase of a computer-aided manufacturing system. The annual net cash benefits and savings associated with the system are described as follows: The system will cost 9,000,000 and last 10 years. The companys cost of capital is 12 percent. Required: 1. Calculate the payback period for the system. Assume that the company has a policy of only accepting projects with a payback of five years or less. Would the system be acquired? 2. Calculate the NPV and IRR for the project. Should the system be purchasedeven if it does not meet the payback criterion? 3. The project manager reviewed the projected cash flows and pointed out that two items had been missed. First, the system would have a salvage value, net of any tax effects, of 1,000,000 at the end of 10 years. Second, the increased quality and delivery performance would allow the company to increase its market share by 20 percent. This would produce an additional annual net benefit of 300,000. Recalculate the payback period, NPV, and IRR given this new information. (For the IRR computation, initially ignore salvage value.) Does the decision change? Suppose that the salvage value is only half what is projected. Does this make a difference in the outcome? Does salvage value have any real bearing on the companys decision?
Reference: Case Study S Dunn Manufacturing is considering the following two alternatives. The cost information for the two proposals for replacing an equipment are provided are in table below. Initial cost Benefits/year Machine X $120,000 $20,000 for the first 10 years and $9,000 for the next 10 years Life Salvage value $40,000 MARR 5.2. The NPW of machine X is A) $35,158 B) $48,192 C) $50,752 Machine Y $96,000 $12,000 per year for 20 years. 20 years 8% $20,000
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You have been asked to evaluate two alternatives, X and Y, that may increase plant capacity for manufacturing high-pressure hydraulic hoses. The parameters associated with each alternative have been estimated. Which one should be selected on the basis of a present worth comparison at an interest rate of 13% per year? Why is yours the correct choice? Alternative First Cost X $-45,000 Maintenance cost, per $-9000 Year Salvage Value $1,000 Life 5 years Y $-55,000 $-4000 $6,500 5 years The present worth of alternative X is $ 13888 and that of alternative Y is $ 44459.4 Alternative X is selected by the company.
Rework the given problem, assuming the following additional information:• The machine is classified as a seven-year MACRS recovery period. Thetax rate is 40%. and the after-tax MARR is 10%.
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A project with the following costs are under consideration to determine its profitability. Using the IRR comparison, and an annual MARR of 10% compounded semiannually. determine if the project should be executed. First cost : $51,300 Semiannual operating cost : $10,000 Semiannual income : $20,000 : $20,,000 : 4 years Salvage value Life in years O a. IRR = 15% semiannual O b. IRR 15.83% semiannual O c. IRR 16.9% semiannual O d. IRR 18.7% semiannual
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Two machines with the following cost estimates are under consideration for a dishwasher assembly process. Using an interest rate of 10% per year, determine which alternative should be selected on the basis of an annual worth analysis.
Compare the Annual Worth of the two systems and identify the better option at MARR = 10% per year: Solar: First cost $1,500,000; AOC $-700,000; Salvage value $100,000; Life of 8 years Geothermal: First cost $2,250,000; AOC $-600,000; Salvage value $50,000; Life of 8 years Select the Geothermal System with a calculated AW of $-1,017,368 Select the Geothermal System with a calculated AW of $-727,591 Select the Solar System with a calculated AW of $-1,238, Select the Solar System with a calculated AW of $-972,416
A company is evaluating a capital investment with the following projections: Initial Investment = $75,000 Salvage value = $15,000 Project life = 10 years Capital budgeting assumptions: Old Machine is fully depreciated Old machine annual operating cost: 40,000 Old machine annual maintenance cost: 10,000 New machine annual operating cost: 20,000 New machine annual maintenance cost: 9,000 Discount rate: 10% Tax rate: 20% What is the project's internal rate of return (IRR)?Answer as a whole number. 5% would be answered as 5.
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