QUESTION: A retrofitted space-heating system is being considered for a small office building. The system can be purchased and installed for $110,000, and it will save an estimated 300,000 kilowatt-hours (kWh) of electric power each year over a six-year period. A kilowatt-hour of electricity costs $0.10, and the company uses a MARR of 15% per year in its economic evaluations of refurbished systems. The market value of the system will be $ 0 at the end of six years, and additional annual operating and maintenance expenses are negligible. Use the Future Worth (FW) method to determine whether this system should be installed or not.

QUESTION: A retrofitted space-heating system is being considered for a small office building. The system can be purchased and installed for $110,000, and it will save an estimated 300,000 kilowatt-hours (kWh) of electric power each year over a six-year period. A kilowatt-hour of electricity costs $0.10, and the company uses a MARR of 15% per year in its economic evaluations of refurbished systems. The market value of the system will be $ 0 at the end of six years, and additional annual operating and maintenance expenses are negligible. Use the Future Worth (FW) method to determine whether this system should be installed or not.

Essentials Of Investments

11th Edition

ISBN:9781260013924

Author:Bodie, Zvi, Kane, Alex, MARCUS, Alan J.

Publisher:Bodie, Zvi, Kane, Alex, MARCUS, Alan J.

Chapter1: Investments: Background And Issues

Section: Chapter Questions

Problem 1PS

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A retrofitted space-heating system is being considered for a small office building. The system can be purchased and installed for $110,000, and it will save an estimated 300,000 kilowatt-hours (kWh) of electric power each year over a six-year period. A kilowatt-hour of electricity costs $0.10, and the company uses a MARR of 15% per year in its economic evaluations of refurbished systems. The market value of the system will be $8,000 at the end of six years, and additional annual operating and maintenance expenses are negligible. Use the PW method to determine whether this system should be installed.
Alliance Manufacturing Company is considering the purchase of a new automated drill press to replace an older one. The machine now in operation has a book value of zero and a salvage value of zero. However, it is in good working condition with an expected life of 10 additional years. The new drill press is more efficient than the existing one and, if installed, will provide an estimated cost savings (in labor, materials, and maintenance) of $6,000 per year. The new machine costs $25,000 delivered and installed. It has an estimated useful life of 10 years and a salvage value of $1,000 at the end of this period. The firm’s cost of capital is 14 percent, and its marginal income tax rate is 40 percent. The firm uses the straight-line depreciation method. Complete the following table to compute the net present value (NPV) of the investment. (Hint: Remember that, in Year 10, Alliances also receives the salvage value of the machine.) Year Cash Flow PV Interest Factor at 14%…
Need both parts. ..
Consider the following project of Hand Clapper, Incorporated. The company is considering a four-year project to manufacture clap-command garage door openers. This project requires an initial investment of $14 million that will be depreciated straight- line to zero over the project's life. An initial investment in net working capital of $590,000 is required to support spare parts inventory; this cost is fully recoverable whenever the project ends. The company believes it can generate $11.6 million in pretax revenues with $4.4 million in total pretax operating costs. The tax rate is 21 percent and the discount rate is 11 percent. The market value of the equipment over the life of the project is as follows: Year Market Value (millions) a. 1 $ 11.2 9.1 234 4.9 1.3 Assuming the company operates this project for four years, what is the NPV? (Do not round intermediate calculations and enter your answer in dollars, not millions, rounded to 2 decimal places, e.g., 1,234,567.89.) b-1. Compute…
A computer call center is going to replace all of its incandescent lamps with more energy-efficient fluorescent lighting fixtures. The total energy savings are estimated to be $1,875 per year, and the cost of purchasing and installing the fluorescent fixtures is $4,900. The study period is five years, and terminal market values for the fixtures are negligible. Solve, a. What is the IRR of this investment? b. What is the simple payback period of the investment? c. Is there a conflict in the answers to Parts (a) and (b)?List your assumptions. d. The simple payback “rate of return” is 1/θ. How close does this metric come to matching your answer in Part (a)?
Pierre’s Hair Salon is considering opening a new location in French Lick, California. The cost of building a new salon is $284,000. A new salon will normally generate annual revenues of $60,490, with annual expenses (including depreciation) of $40,800. At the end of 15 years the salon will have a salvage value of $74,000.Calculate the annual rate of return on the project.
Consider the following project for Hand Clapper, Inc. The company is considering a 4-year project to manufacture clap-command garage door openers. This project requires an initial investment of $16.7 million that will be depreciated straight-line to zero over the project’s life. An initial investment in net working capital of $1,070,000 is required tosupport spare parts inventory; this cost is fully recoverable whenever the project ends. The company believes it can generate $14.3 million in revenues with $5.8 million in operating costs. The tax rate is 22 percent and the discount rate is 14 percent. Themarket value of the equipment over the life of the project is as follows:d. Compute the project NPV assuming the project is abandoned after only threeyears.Year: Market Value ($ millions)1: $ 14.702: $11.703: $9.204: $1.95
A new production system for a factory is to be purchased and installed for $135331. This system will save approximately 300,000 kWh of electric power each year for a 6-year period. Assume the cost of electricity is $0.10 per kWh, and factory MARR is 15% per year, and the salvage value of the system will be $8662 at year 6. Using the PW method to analyzes if this investment is economically justified A- calculate the PW of the above investment and insert the result below.
i need the answer quickly
Rakesh
Alliance Manufacturing Company is considering the purchase of a new automated drill press to replace an older one. The machine now in operation has a book value of zero and a salvage value of zero. However, it is in good working condition with an expected life of 10 additional years. The new drill press is more efficient than the existing one and, if installed, will provide an estimated cost savings (in labor, materials, and maintenance) of $6,000 per year. The new machine costs $25,000 delivered and installed. It has an estimated useful life of 10 years and a salvage value of $1,000 at the end of this period. The firm’s cost of capital is 14 percent, and its marginal income tax rate is 40 percent. The firm uses the straight-line depreciation method.a. What is the net cash flow in year 0 (i.e., initial outlay)?b. What are the net cash flows after taxes in each of the next 10 years?c. What is the NPV of the investment?d. Should Alliance replace its existing drill press?
An assembly operation at a software company now requires $250,000 per year in labor costs. A robot can be purchased and installed to automate the operation. The robot will cost $800,000, have an economic life of ten years, and have no residual value at the end of its life. Maintenance and operating expenses of $64,000 per year for the robot are estimated. MARR is 15%. Determine whether this is a viable project. Solve the problem by: (a) Present worth analysis (b) Annual cash flow analysis+- (c) Rate of return analysis

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