Royal Aviation Corporation is considering purchasing a piece of equipment to manufacturewing fixtures for an aircraft. The cost of the system is $5,000,000 with a life expectancy of 10years and no salvage value. The annual operating cost of the system is $400,000 and a revenuestream of $1,500,000 at the end of each year is expected for life. Using AW analysis andassuming a MARR of 10%, is this investment economically justified?No, with AW= -$3,900,000No, with AW= -$286,250Yes, with AW = $686,250Yes, with AW= $286,250

The objective of the question is to determine whether the investment in the equipment is…

Answered: Royal Aviation Corporation is…

ENGR.ECONOMIC ANALYSIS

14th Edition

ISBN:9780190931919

Author:NEWNAN

Publisher:NEWNAN

Chapter1: Making Economics Decisions

Section: Chapter Questions

Problem 1QTC

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Calculate the capitalized cost of a project that has an initial cost of P3,500,000 and an additional cost of P1500, 000 at the end of every 10 yrs. The annual operating costs will be P150, 000 at the end of every year for the first 5 years and P180, 000 thereafter. In addition, there is expected to be recurring major rework cost of P400, 000 every 13 yrs. Assume i =18% a.Php 4,467,564.367 b.Php 5,673.467.567 c.Php 5,534,673.123 d.Php 4,813,109.563
A manufacturing engineer is considering whether to repair or replace a broken machine. The first alternative (Alternative “A”) is to repair the machine with an initial cost of $15,000, an annual maintenance of $700 per year, with no salvage value at the end of its five-year useful life. The second alternative (Alternative “B”) is to replace the machine for $30,000. The maintenance cost starts in the second year at $200 and increases $200 per year in all subsequent years. There is an anticipated salvage value of $5,000 at the end of 20 years. Assuming interest rate is 6% and an analysis period of 20 years, what would be the preferable alternative ?
A 50-kilowatt gas turbine has an investment cost of $35,000. It costs another $15,000 for shipping, insurance, site preparation, fuel lines, and fuel storage tanks. The operation and maintenance expense for this turbine is $500 per year. Additionally, the hourly fuel expense for running the turbine is $7.00 per hour, and the turbine is expected to operate 3,500 hours each year. The cost of dismantling and disposing of the turbine at the end of its 6-year life is $9,000. a. If the MARR is 16% per year, what is the annual equivalent life-cycle cost of the gas turbine? b. What percent of annual life-cycle cost is related to fuel? Click the icon to view the interest and annuity table for discrete compounding when the MARR is 16% per year. a. The annual equivalent life-cycle cost of the gas turbine is $ (Round to the nearest dollar.)
Two mutually exculsive alternative are being considered for the environmental protection equipment at a petroleum refinary. one of these alternatives must be selected. The estimated cash flow for each alternatives are as follows. Use MARR of 10% Note: Do not round in between solutions and round up to 2 decimal places for final asnwer Asnwer the following: B. Assume the study period is shortened to Five years. The market value of Alternative B after Five years is estimated to be $15,000. Which alternative would you recommend? Use AW method.
Determine the capitalized cost of a project that cost P324,000 with an anticipated salvage value of P50,000 at the end of four years, if money is worth 8%. Annual maintenance cost is P20,000.
Super Tennis Co is in the business of designing and manufacturing running shoes for long distance runners. They are considering a $500 million upgrade to their production line for the iPhone/iPad/ iWatch connected shoe that has Bluetooth connectivity. The potential cash flow is estimated at net revenues of $460 million per year for four years. Recently, they were advised of potential patent infringement and to eliminate this problem they are considering buying a license. YezzCo will sell a license that is good for four years of exclusive use of the patent and associated intellectual property. Super Tennis Co uses a corporate MARR of 14% and their risk-free alternatives are 6%. The VP of Engineering at Super Tennis Co estimates market volatility in demand is 40%. The VP of Marketing estimates market volatility in demand at 35%. 1.Since the VPAc€?cs trust you, they asked you to figure out the most they should pay for a license from YezzCo. 2. Super Tennis Co is known to be liberal in…
An investment of $1,001,000 today yields positive cash flows of $200,000 each year for years 1 through 10. MARR is 15%. Determine the DPBP of this investment. years Round your answer up to the nearest whole number of years. Tolerance is ±1.
A special-purpose 30-horsepower electric motor has an efficiency of 90%. Its purchase and installation price is $2,200. A second 30-horsepower high-efficiency motor can be purchased for $3,200, and its efficiency is 93%. Either motor will be operated 4,000 hours per year at full load, and electricity costs $0.10 per kilowatt-hour (kWh). MARR = 15% per year, and neither motor will have a market value at the end of the eight-year study period. Solve, a. Which motor should be chosen? b. For an incremental investment of $1,000 in the more efficient motor, what is the PW of the energy savings over the eight-year period?
Machine A costs Q10,000.00, with a recovery value of Q4,000.00 at the end of 5 years and has annual expenses ofoperation of Q5,000.00 during the first three years and Q6,000.00 during the last 2. Machine B costsQ14,000.00, with a recovery value of Q3,000.00 at the end of 10 years. Its operating expenses amount to Q3,500.00annually during the 5 years and Q4,500.00 during the last 5. The increases in operating expenses are theexpected for maintenance, repair and loss of efficiency due to use. The minimum required rate of returnis 15%a) Make the graph and determine the annual cost and make the respective comparison between the two machines.b) Select the most feasible machine.c) Determine the future worth in year 10 for both machines.d) Determine the quarterly value during the 10 years for both machines.e) As an Engineer you are asked to determine an action plan, define objectives, activities to overcome the bestalternative and estimating a new NPV, which exceeds 15% the best optionf)…
An economic evaluation of the following mutually exclusive alternatives is being conducted. Since they have different service lives, repeatability is assumed and an analysis period of 18 years is used. The MARR is 10%. Initial cost Annual revenues Service life (years) Alternative A $30,000 $25,000 6 Alternative B $100,000 $40,000 9 Answer the following two questions: (1) The net AW of Alternative B over the analysis period is (select the closest value) A. $15,614 B. $27,807 C. $22,636 D. $57,364 (2) The net PW of Alternative B over the analysis period is (select the closest value) A. $228,056 B. $185,647 C. $130,361 D. $128,056
Question 3 Consider a proposal to enhance production of tortillas en a taqueria. The new machine is estimated to cost $33 million and will incur an additional $1.5 million per year in maintenance costs. The machine will produce annual savings of $4.5 million each year. The Minimum acceptable rate of return (MARR) is 8.5% per year, and the study period is five years at which time the machine will be obsolete (worthless). What is the maximum (minimum) percentage of initial investmet change that reverse your decision?
Problem 6 A sensitivity analysis is performed for a facility with a MARR of 6%. The facility has an initial investment of $550,000 and the project has a life span of 15 years. A constant annual loan payment of $45,000 is required over the life span. Annual operation and maintenance costs are expected to be $95,000 per year that increase $10,000 per year. An additional expected maintenance cost of $126,000 is expected at year 10. Annual revenue is expected to be $152,000 per year that increases $15,000 per year. At the end of the life span, the salvage value is expected to be $1,250,000. Worst Case: Based on future projections, the annual operations and maintenance costs are expected to be $95,000 for the first year and increase $15,000 per year. Additional expenses for maintenance are expected to be $45,000 at year 5 and $65,000 at year 10. Annual expected revenue is expected to be $143,000 that increases $12,000 per year. At the end of the life span, the salvage value is expected to…

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