HW#5Last year your company purchased a used compressor for a gas gathering linesystem for $55,000. The field manager just called and informed you themachine broke down and needs to be replaced ASAP. You have found a newcompressor with a purchase price of $97,830 that you can have delivered tothe job site that would meet the necessary service requirements. Assume thenew asset would have a zero-salvage value at the end of year 6. The otheroption is to rent a compressor and eliminate the upfront cost. The rental pricewill be $2,000 per month for 12 months paid at the beginning of each month.The rental agent informed you the cost is anticipated to escalate 5% at the endof each year. Build a 6-year model accounting for the cost escalation after 12monthly payments. Based on a Present Worth Cost analysis should you leaseor purchase? Confirm your selection by calculating an incremental NPV andROR analysis. Your company uses a 12.68% effective annual interest rate.If there was a fee to buy the compressor, how much could it be to make youeconomically indifferent?

1. Lease Cost Calculation (with 5% annual escalation)The lease payment starts at $2,000 per month in…

Answered: HW#5 Last year your company purchased a…

ENGR.ECONOMIC ANALYSIS

14th Edition

ISBN:9780190931919

Author:NEWNAN

Publisher:NEWNAN

Chapter1: Making Economics Decisions

Section: Chapter Questions

Problem 1QTC

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A university is trying to determine how much it should charge for tickets to basketball games to help offset the expenses of the new arena. The cost to build the arena including labor, materials. e tc. was $92 million. Each year the maintenance cost is expected to increase by 5% as the building gets older. 1l1e maintenance cost for the first year is $150.000. Utilities arc expected to average about $200.000 per year and labor costs $300,000. The average attendance at basketball games over the year is expected to be J00.000 people (or 100.000 tickets sold to events). Assuming the arena has no other source of income besides regular ticket sales (not including student tickets) for basketball games, what should the university charge so that it can recover at least a 6% cost of borrowing on its investment? ll1c university expects the arena to be used for 40 years and 10 have no appreciable salvage value.

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