First Cost, $ Net Income, $ per year Salvage Value, $ Life, years Alternative A -20,000 3000 500 4 Alternative B -30,000 1000 700 8 Alternative C -100,000 4000 1. Compare the alternatives using capitalized cost using an interest rate of 8% per year. 2. Compare Alternative A and Alternative B using Present Worth Analysis at an interest rate of 8% per year.
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- Perform present worth analysis with the costs shown below to select the best alternative. The MARR is 12% per year. Machine A 1000 Machine B *1000 Purchase cost $52 $63 $15/year $9 /year $31 Ayear Annual cost Annual benefit $38 /year $19 Salvage value Useful life $13 4 years S yearsYou wish to evaluate four independent projects that all have a 10-year life at MARR = 15% per year. Preliminary estimates for first cost, annual net income, and SV have been made. A B C D First cost, $ −1,200 −2,000 −5,000 −7,000 Annual net income, $/year 200 400 1100 1300 Salvage value, $ 5 6 8 7 (a) Accept or reject each project using a present worth analysis. On your spreadsheet, include the logical IF function to make the accept/ reject decision. (b) The preliminary estimates have changed for projects A and B as shown below. Use the same spreadsheet to reevaluate them. A B First cost, $ −1,000 −2,200 Annual net income, $/year 300 440 Salvage value, $ 8 0Example A company is considering two types of equipment for its manufacturing plant. Pertinent data are as follows: Freeze Type A Type B First cost P200,000 P300,000 Annual Operating Cost P32,000 P24,000 D Annual Labor Cost P50,000 P32,000 Insurance and Property Taxes 3% 3% Payroll Taxes 4% 4% Estimated Life TO 10 If the minimum required rate of return is 15%, which equipment should be selected?
- Compare the alternatives C and D on the basis of a present worth analysis using an interest rate of 13% per year and a study period of 10 years. Alternative C $-46,000 $4,000 $-1,300 $6,000 10 First Cost AOC, per Year Annual Increase in Operating Cost, per Year Salvage Value Life. Years The present worth of alternative C is $1 (Click to select) offers the lower present worth. HELIME BIEN D $-20,000 $-7,500 $-100 $1,300 5 and that of alternative D is $ AFollowing cash flows for alternatives X and Y at an interest rate of 10% per year. Machine X Machine Y -146,000 -220,000 Initial cost, $ AOC, $/year Annual revenue, $/year Salvage value, $ Life, years -15,000 80,000 10,000 3 -10,000 75,000 25,000 6 In comparing the alternatives on a present worth basis, the PW of Machine X is closest toQuestion 6 For alternatives shown in the table below and on the basis of their capitalized costs CC and an interest rate of 10% per year. Answer the follc better option: Alternative A First cost, $ Maintenance costs, $ per year Salvage value, $ Periodic costs, $ every 10 years Life, years 31,580 5,000 2,000 282,963 13,000 10,000 10,000 4. CC for alternative A=
- Solve this problem in Excel. The following two alternatives are mutually exclusive. (a) Which one will you select if your MARR is 15% per year? Use rate of return analysis. (b) Graph interest rate vs. present value for both option 1 and 2. ( c) Discuss how your selection between option 1 and 2 will change when MARR is changed and at which interest rate the two options are the same economically. Alternative Initial Cost Annual Benefit Life, years Ordinary (O) $38,000 $9,400 5 Above average (AA) $35,000 $9,000 6Using the cash flow shown below decide which alternative is the most economical using (a) Annual Worth analysis and (b) Present worth analysis. What should be the first cost of the two other alternatives to breakeven with the selected alternative using (c) Present Worth analysis and (d) Annual Worth Analysis. MARR is 10% A B C First Cost, Php -90,000 -400,000 -650,000 Annual Cost. Php/year -40,000 -20,000 -13,000 Overhaul every 10 years, Php -- -- -80,000 Salvage Value, Php 7,000 25,000 200,000 Life, years 3 10 INFINITYThe General Hospital is evaluating new office equipment offered by three companies. Cost Annual benefit End of useful life salvage value Useful life (yrs) Select one: 9.5% 8.5% 7.5% Company A $500 $130 $0 10.5% 5 The incremental rate of return between Company B and Company C is close to Company B $600 $115 $250 5 Company C $700 $100 $180 10
- YOLO Construction Co. is planning to purchase a new truck Company uses MARR as 10%% per year. Evaluate the following two altematives by Present Worth Analysis using Least Common Multiple (LCM) technique. Select the PW value of Alternative A First Cost, $ -170000 -130000 Annual Income, S/year 22000 and increasing starting from year 1 by $500 each year 29000 Annual Cost, S/year -7000 -11000 Major Maintenance Cost, every 3 years, S Salvage Value, S Life, years |-10000 17000 10000 4 Select one: O a. -195520.8 O b. -146445.8 O c. -116200 O d. -191185 O é. -1421101. A pharmaceutical company that manufactures ascorbic acid tablets is investigating two production options that have the estimated cash flows shown ($10 million units). Which one should be selected based on a present worth analysis (in million units) at 10% per year? In- outsourced house Initial Investment -30 Annual cost, $ per year 24 -5 -2 Annual Revenue, $ per 13 year 2 N/A Salvage Value, $ LifeNational homebuilders Inc plans to purchase new rain gutter forming equipment. Two manufacturers offered the following estimates, First Cost, $ Annual Operating Cost, $/year Salvage Value, $ Life, years Vendor A 15,000 3500 1000 6 Vendor B 18,000 3100 2000 9 a. Determine which vendor should be selected on the basis of a PW comparison, if the MARR is 15% per year. b. National Homebuilders has a standard practice of evaluating all options over a 5-year period. If a study period of 5 years is used and the salvage values are not expected to change, which vendor should be selected?