Teduie Construction made an investment in a machine that is used for road construction two years ago. Due to rapidly changing technology, a new machine is challenging this 2-year-old machine. The chief engineer at Teduie Construction has collected the following information relevant to the challenger: First cost: $50,000 Future market values: decreasing by 20% per year Estimated service life: 5 years Annual Operating Costs: $5000 in year 1, then increasing by $2000 per year thereafter Assuming i = 10%, determine the economic service life of the challenger.
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- Newmarge Products Inc. is evaluating a new design for one of its manufacturing processes. The new design will eliminate the production of a toxic solid residue. The initial cost of the system is estimated at 860,000 and includes computerized equipment, software, and installation. There is no expected salvage value. The new system has a useful life of 8 years and is projected to produce cash operating savings of 225,000 per year over the old system (reducing labor costs and costs of processing and disposing of toxic waste). The cost of capital is 16%. Required: 1. Compute the NPV of the new system. 2. One year after implementation, the internal audit staff noted the following about the new system: (1) the cost of acquiring the system was 60,000 more than expected due to higher installation costs, and (2) the annual cost savings were 20,000 less than expected because more labor cost was needed than anticipated. Using the changes in expected costs and benefits, compute the NPV as if this information had been available one year ago. Did the company make the right decision? 3. CONCEPTUAL CONNECTION Upon reporting the results mentioned in the postaudit, the marketing manager responded in a memo to the internal audit department indicating that cash inflows also had increased by a net of 60,000 per year because of increased purchases by environmentally sensitive customers. Describe the effect that this has on the analysis in Requirement 2. 4. CONCEPTUAL CONNECTION Why is a postaudit beneficial to a firm?A small chemical manufacture company needs to replace an old high-shear mixer. Two different models have been proposed. • Model A costs $250,000 for purchasing and installation. The model has service life of 6 years and at the end of the sixth year has estimated salvage value of $50,000. The model in the first year has an operational and malntenance (O&M) cost of $24,000 and the cost increases each year by 5% over the previous year's O&M cost. • Model B costs $175,000 for purchasing and installation. The model has service life of 3 years and at the end of the third year has estimated salvage value of $30,000. The model in the first year has an operational and maintenance (O&M) cost of $11,000 and the cost increases cach year by 7% over the previous year's O&M cost. If the company has MARR of 10%, select the correct statement. O Select Model A because it has annual equivalent cost of $77,764 which is less than Model B O Select Model B because it has annual equivalent cost of $73,044…The Lift Operations Manager at the Blue Mountain Ski Resort in Collingwood, ON has decided to carry out an analysis to determine when the chairlift up to their Black Diamond run should be replaced. The existing chairlift was purchased 25 years ago for $715 000. The costs of operating and maintaining this lift for a 5-year study period are predicted to be $70 000 in year 1 and increasing by $1 300 each year after. Blue Mountain Ski Resort uses a MARR of 10% for lift operations projects. All calculations should be to the nearest dollar. a) Assume the chairlift loses value following a declining-balance depreciation model with a depreciation rate of 7%. Calculate the salvage value for now (year=0) and each of the next 5 years. b) Find the economic life of the existing chairlift. What is EAC*? c) The Lift Operation Manager has done some market research for possible replacement alternatives. The results of this research are outlined in the following table. The economic lives of the…
- Because of rapidly advancing technology, Stuart publications Corporation is considering replacing its existing typesetting machine with leased equipment. The old machine, purchased two years ago, has an expected useful life of six years and is in good condition Apparently, it will continue to perform as expected for the remaining four years of its expected useful life. A four year lease for equipment with comparable productivity can be obtained for $13,000 per year. The following data apply to the old machine. Original cost $167,000 Accumulated depreciation $67,000 Current market value $93,000 Estimated Salvage value $5,000 Required a) Determine the annual opportunity cost of using the old machine based on your computations, recommend whether to replace it. b) Determine the total cost of the lease over the four-year contract. Based on your computations, recommend whether to replace the old machine. a) Annual opportunity cost Should the old machine be replaced? b) Total lease cost…Jack McGuire has been with Bulk Productions Group (BPG) for 14 years. McGuire decides to start slow with a project testing the increased automation of their horse feed line. Below are the projected cost of the expansion in automation, given a 5 year useful life of the robotic equipment: Direct Cost of Automation Purchase price of new robotic equipment $1,450,000 Sales tax on equipment $87,000 Shipping cost of equipment $63,000 Equipment installation $175,000 Software $98,000 Initial system and equipment testing $25,000 Equipment scrap value after five years $70,000 Annual Warranty Service Contract $21,000 robotics proposal one plant supervisor position with a salary of $98,000 per year. Two machine will need to be hired at $41,000 each. The automation and related electronics will increase energy usage by $126,000 per year. The software will create an expected savings of $210,000 per year Automation efficiencies will create a…Jack McGuire has been with Bulk Productions Group (BPG) for 14 years. McGuire decides to start slow with a project testing the increased automation of their horse feed line. Below are the projected cost of the expansion in automation, given a 5 year useful life of the robotic equipment: Direct Cost of Automation Purchase price of new robotic equipment $1,450,000 Sales tax on equipment $87,000 Shipping cost of equipment $63,000 Equipment installation $175,000 Software $98,000 Initial system and equipment testing $25,000 Equipment scrap value after five years $70,000 Annual Warranty Service Contract $21,000 robotics proposal one plant supervisor position with a salary of $98,000 per year. Two machine will need to be hired at $41,000 each. The automation and related electronics will increase energy usage by $126,000 per year. The software will create an expected savings of $210,000 per year Automation efficiencies will create a…
- A piece of new equipment has been proposed by engineers to increase theproductivity of a certain manual welding operation. The investment cost is $25,000, and the equipment will have a market (salvage) value of $5,000 at the end of its expected life of five years. Increased productivity attributable to the equipment will amount to $8,000 per year after extra operating costs have been subtracted from the value of the additional production. Use a spreadsheet to evaluate the IRR of the proposed equipment. Is the investment a good one? Recall that the MARR is 20% per year. Create a single spreadsheet that calculates PW, FW, AW, IRR, and ERR for the proposed investment. Assume that ∈= MARR = 20% per year. Does your recommendation change if the MARR decreases to 18%? Increases to 22%?Eight years ago, the Blank Block Building Company installed an automated conveyor system for $38,000. When the conveyor is replaced, the net cost of removal will be $2500. The minimum EUAC of a new conveyor is $6500. When should the conveyor be replaced if BBB’s MARR is 12%? The O&M costs for the next 5 years are $5K, $6K, $7K, $8K, and $9K.A small utility company is considering the purchase of a powerdriven post hole digger. The equipment will cost $8,000 and have an estimated life of 8 years and a salvage value of $1,000 at that time. Annual maintenance costs for the digger are estimated to be 15% of the first cost regardless of its level of usage. Operations costs are $40 per day with an output rate of 25 holes per day. At present, holes are manually dug at a rate of 1.5 per day by a laborer whose marginal cost is $11.20 per day. Determine the break-even value in holes per year. MARR is 8%.
- A small chemical manufacture company needs to replace an old high-shear mixer. Two different models have been proposed. . Model A costs $250,000 for purchasing and installation. The model has service life of 6 years and at the end of the sixth year has estimated salvage value of $50,000. The model in the first year has an operational and maintenance (O&M) cost of $24,000 and the cost increases each year by 5% over the previous year's O&M cost. • Model B costs $175,000 for purchasing and installation. The model has service life of 3 years and at the end of the third year has estimated salvage value of $30,000. The model in the first year has an operational and maintenance (O&M) cost of $11,000 and the cost increases each year by 7% over the previouS year's O&M cost. It the company has MARR of 10%, select the correct statement. O Select Model A because it has annual equivalent cost of $77,764 which is less than Model B O Select Model B because it has annual equivalent cost of $73,044…A company is considering to buy a new machine for the production of its product. Currently the company is producing 1,000 products per hour with 5 workers that are paid $10 per hour each. The price of the new machine under consideration is $22,000 with useful life of 10 years and the salvage value is estimated to be $500. The annual operating & maintenance cost of the new machine is $2,000 and requires one skilled operator, that will be paid from $24 per hour, and can produce 1,500 products per hour. If the company uses MARR of 8% p.a., answer the following: (a) What is the breakeven point? (use AW). (b) What is the interpretation of this breakeven point? Explain. (c) If the company needs 180,000 products per year, should they buy the machine? Show all work. (d) What should be the total annual operating & maintenance cost of the machine in order to breakeven at the production level of 200,000 products? Note: You should first define your variable.Bartlet Industries is considering a new product line and will need to replace older equipment with new equipment in order to manufacture the product. The new machine will cost $250,000 with an installation cost of $25,000, and will be depreciated using the five year MACRS depreciation schedule in the table in question 4. Bartlet also spent $25,000 for a market analysis to measure demand for the new product. The old machine is four years old, had an original depreciable base of $150,000 and is being depreciated using the same five year MACRS depreciation schedule. The machine is expected to be sold for $30,000. An investment in working capital totaled $20,000. Revenues are expected to be $250,000 in the first year, and grow by 5% each year of the project’s four year life. Fixed expenses are expected to be $45,000 per year and variable expenses will begin year 1 at $35,000 and grow with sales at 5% each year. The project is expected to last four years. After the fourth year, the…