PROBLEM: A company that sells computers has proposed to a public utility company that it purchase a small electronic computer for 1,000,000 to replace ten calculating machines and their operators. An annual service maintenance contract for the computer will be provided at a cost of 100,000 per year. One operator will be required at a salary of 96,000 per year and one programmer at a salary of 144,000 per year. The estimated economic life of the computer is 10 years. The calculating machine costs 7,000 each when new, 5 years ago, and presently can be sold for 2,000 each. They have an estimated life of 8 years and an expected ultimate trade-in value of 1,000 each. Each calculating machine operator receives 84,000 per year. Fringe benefits for all labor cost 8% of annual salary. Annual maintenance costs on the calculating machines have been 500 each. Taxes and insurance on all equipment is 2% of the first cost per year. If capital costs the company about 25%, would you recommend the computer installation? (ANSWER: The calculators should be purchased)

PROBLEM: A company that sells computers has proposed to a public utility company that it purchase a small electronic computer for 1,000,000 to replace ten calculating machines and their operators. An annual service maintenance contract for the computer will be provided at a cost of 100,000 per year. One operator will be required at a salary of 96,000 per year and one programmer at a salary of 144,000 per year. The estimated economic life of the computer is 10 years. The calculating machine costs 7,000 each when new, 5 years ago, and presently can be sold for 2,000 each. They have an estimated life of 8 years and an expected ultimate trade-in value of 1,000 each. Each calculating machine operator receives 84,000 per year. Fringe benefits for all labor cost 8% of annual salary. Annual maintenance costs on the calculating machines have been 500 each. Taxes and insurance on all equipment is 2% of the first cost per year. If capital costs the company about 25%, would you recommend the computer installation? (ANSWER: The calculators should be purchased)

ENGR.ECONOMIC ANALYSIS

14th Edition

ISBN:9780190931919

Author:NEWNAN

Publisher:NEWNAN

Chapter1: Making Economics Decisions

Section: Chapter Questions

Problem 1QTC

See similar textbooks

Similar questions

NOMINAL MARR
Given the following marginal cost values for a given asset, determine the equivalent uniform annual cost for the first three years and identify the minimum cost life. Use an interest rate of 10%. Year Marginal cost of existing asset 1 $3,500 2 $3,150 3 $3,400
DBS Builders Pte Ltd purchased an asphalt paver eight years ago for $280,000. The estimated operation and maintenance (O&M) costs for the next three years are $56,000, $68,000, and $82,000, respectively. The asphalt paver can be sold for $65,000 now, for $57,000 next year, for $45,000 two years from now, and for $28,000 three years from now. 4. The latest asphalt paver in the market costs $290,000 and has an estimated service life of five years. The salvage value is estimated to be $50,000 after five years. The expected annual O&M costs will be $6,000 for the first year and increase by $3,800 per year thereafter. If a before-tax minimum attractive rate of return (MARR) of 12% is estimated, what replacement decision should DBS Builders make?
Please do this problem in excel( including calculations)
A piece of new equipment has been proposed by engineers to increase the productivity of a certain manual welding operation. The investment cost is $25,000, and the equipment will have a market value of $5,000 at the end of a study period of seven years. Increased productivity attributable to the equipment will amount to $8,000 per year after extra operating costs have been subtracted from the revenue generated by the additional production. 1-1 If the firm's MARR is 20% per year, is this proposal a sound one? Use the PW method.
A machine costs $19,310 and is expected to have a scrap value of $2,991 whenever it is retired. Operating and Maintenance costs are $1,047 for the first year and expected to increase by $1,751 thereafter. If the MARR is 12%, determine the minimum equivalent uniform annual cost associated with the optimal economic life of the machine. The service life of this machine is 5 years. Note: round your answer to two decimal places, and do not include spaces, currency signs,
You have been asked to evaluate the profitability of building a new distribution center under the following conditions: 1. The proposal is for a distribution center costing $1,500,000. The facility has an expected useful life of 35 years and a net salvage value (net proceeds from its sale after tax adjustments) of $225,000. II. Annual savings (due to a better strategic location) of $227,000 are expected, annual maintenance and administrative costs will be $114,000, and annual income taxes are $43,000. Suppose that the firm's MARR is 12%. Determine the net present worth of the investment.
Tower City aims to construct a new bypass between two main routes that will reduce commuter travel time. The route will cost $15 million and will save 17,500 people $100 per year in petrol costs. The path will be paved. Every year, at a cost of $7,500, the surface must be refinished. The road will be in use for the next 20 years. Determine if Tower City should construct the road. Money has an interest rate of 8%(ɛ = interest rate) . Note: Show final answer in two decimal places and show complete solution with cash flow a. The Net Present Worth of this project = $ Blank 1 b. The IRR of this project = Blank 2% c. The ERR of this project = Blank 3% %3D d. Should the city build the bypass road? (type only Yes or No) = Blank 4 %3D
A stamping machine currently has a salvage value of $10 000, and this will drop by 20% per year from now on. Its expected maintenance costs are $1 000 for this year, but in the following year it is expected to need a major overhaul, costing $3 500. In the year following the overhaul, its maintenance costs will be $500, and these will then go up by 30% per year. Your MARR is 10%. There is a challenger available that will do the same job for an EAC of $3 400. When should you replace the old machine? [Enter your response in years]
ABC Electronics must buy a piece of equipment to place electronic components on the printed circuit boards it assembles. The proposed equipment has a 10-year leife with no scrap value. The supplier has given JT several purchase alternatives. The first is to purchase the equipment for $850,000 (Option A). The second is to pay for the equipment in 10 equal installments of $135,000 each, starting one year from now (Option B). The third is to pay $215,000 now and $95,000 at the end of each year for the next 10 years (Option C). Which alternative should JT choose if their MARR is 11% per year? Use an IRR comparison approach. Where JT Electronics must purchase one of the pieces of equipment, do not consider the do nothing option (Perform all calculations using 5 significant figures and round your answer to one decimal place. Also remember that text answers are case-sensitive):. Answers entered using text are case sensitive! Using the defender/challenger approach, what is the Incremental IRR…
The replacement of a planning machine is being considered by the Reardorn Furniture Company. (There is an indefinite future need for this type of machine.) The best challenger will cost $32,000 for installation and will have an estimated economic life of 11 years and a $1,800 MV at that time. It is estimated that annual expenses will average $16,000 per year. The defender has a present BV of $6,000 and a present MV of $3500. Data for the defender for the next three years are given below. Using a before-tax interest rate of 12% per year, make a comparison to determine whether it is economical to make the replacement now. MV at End of BV at End of Expenses during Year Year the Year $ - 1,500 $4,500 $18,000 - 2,000 3,000 1 2 22,000 3 - 2,500 1,500 26,000 Click the icon to view the interest and annuity table for discrete compounding when i = 12% per year. Year Fill in the table for the EUAC values for the defender for years 1-3. (Round to the nearest dollar.) Year 1 2 3 EUAC $ $ SA