Kleen Corporation, a privately owned and operated single-stream recycling facility, has annual contracts with several cities in the Tri-County Metropolitan Area. Kleen Corporation wants to add a new set of sensors to its existing machinery that will separate plastics and metals from paper and glass materials earlier in the separation process. Two versions of the sensor equipment are available from the Green Corporation. Model 400 has a first cost of $700,000, while Model 1000 costs $1 million. Both have an expected 10% salvage value after their respective useful lives of 6 and 3 years. Assume you work for Kleen Corporation as a project engineer. You have made first-cut estimates of the annual savings (with no annual increases for efficiency) and expenses (AOC with no annual decreases or increases) for both models. Required: a. Perform a ROR analysis using MARR = 5% per year to recommend one of the two models to your president. b. Whether there is any ranking inconsistency present with these two alternatives? If there is, then recommend one of the two models to your president. Model 400 1000 Year Savings, $1000 per year Expenses, $1000 per year Savings, $1000 per year Expenses, $1000 per year 1 180 -40 410 410 -60 -60 2 3 4 180 180 180 -40 -40 -40 410 -60 5 180 -40 6 180 -40
Kleen Corporation, a privately owned and operated single-stream recycling facility, has annual contracts with several cities in the Tri-County Metropolitan Area. Kleen Corporation wants to add a new set of sensors to its existing machinery that will separate plastics and metals from paper and glass materials earlier in the separation process. Two versions of the sensor equipment are available from the Green Corporation. Model 400 has a first cost of $700,000, while Model 1000 costs $1 million. Both have an expected 10% salvage value after their respective useful lives of 6 and 3 years. Assume you work for Kleen Corporation as a project engineer. You have made first-cut estimates of the annual savings (with no annual increases for efficiency) and expenses (AOC with no annual decreases or increases) for both models. Required: a. Perform a ROR analysis using MARR = 5% per year to recommend one of the two models to your president. b. Whether there is any ranking inconsistency present with these two alternatives? If there is, then recommend one of the two models to your president. Model 400 1000 Year Savings, $1000 per year Expenses, $1000 per year Savings, $1000 per year Expenses, $1000 per year 1 180 -40 410 410 -60 -60 2 3 4 180 180 180 -40 -40 -40 410 -60 5 180 -40 6 180 -40
Chapter1: Financial Statements And Business Decisions
Section: Chapter Questions
Problem 1Q
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Transcribed Image Text:Kleen Corporation, a privately owned and operated single-stream recycling facility, has annual contracts with several cities in
the Tri-County Metropolitan Area, Kleen Corporation wants to add a new set of sensors to its existing machinery that will
separate plastics and metals from paper and glass materials earlier in the separation process. Two versions of the sensor
equipment are available from the Green Corporation. Model 400 has a first cost of $700,000, while Model 1000 costs $1
million. Both have an expected 10% salvage value after their respective useful lives of 6 and 3 years.
Assume you work for Kleen Corporation as a project engineer. You have made first-cut estimates of the annual savings (with no
annual increases for efficiency) and expenses (AOC with no annual decreases or increases) for both models.
Required:
a. Perform a ROR analysis using MARR = 5% per year to recommend one of the two models to your president.
b. Whether there is any ranking inconsistency present with these two alternatives? If there is, then recommend one of the two
models to your president.
Model
400
1000
Year
Savings, $1000 per year
Expenses, $1000 per year
Savings, $1000 per year
Expenses, $1000 per year
1
180
-40
410
-60
2
3
180
180
-40 -40
410
410
-60
-60
4
180
-40
5
180
-40
6
180
-40
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