Case Study Exercise 4The city of Kelowna, British Columbia, is considering various proposals regarding theimprovement of old buildings in the city. All proposals can increase the lifespan of buildings,but the benefits differ in each plan. An incremental B/C analysis was initiated, but the engineerconducting the study left recently.(a) Using a 20-year study period and an interest rate of 8% per year, fill in the blanks inthe incremental B/C columns of the table.(b) Which alternative should be selected?AB/C Ratio When Compared with AlternativeRPAlternativePW ofCost, $B/C RatioQMillionPORS101.12.83402.42.83501.4801.8S

The Benefit-Cost Ratio (B/C Ratio) is a financial metric used to evaluate the profitability or…

Answered: The city of Kelowna, British Columbia,…

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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Use the following information to answer questions 4 and 5 (including their appropriate subsections) D. Newcombe & Associates, Inc., is considering the introduction of a new product. Production of the new product requires an investment of $140,000 in equipment that has a five-year life. The equipment has no salvage value at the end of five years and will be depreciated on a straight-line basis. Newcombe's required return is 15%, and the tax rate is 34%. The firm has made the following forecasts: Unit Sales Price per unit Variable cost per unit Fixed cost per year Base Case 2,000 $55 $22 $10,000 Lower Bound 1,800 $55 $22 $10,000 Upper Bound 2,200 $55 $22 $10,000 Question 4 (4.1) Assume the base-case forecasts for the Newcombe project. Compute the accounting break- even point.
APA is planning to expand its operations and plans to purchase a parcel of land on which to construct a building for their review center, which they will need 5 years hence. The current costs are: land: P2M; building: P3.5M. Since these are not needed immediately, the company plans to defer the purchase of the land and the construction of the building until they are needed. If the value of the land and the cost of the building are expected to appreciate at the rates of 10% and 8% per annum, respectively. What will be the total cost of the investment after 5 years? A. P8,580,275.74 B. P7,244,668.37 C. P8,363,668.27 D. None of these
Consider how Kyler Valley River Park Lodge could use capital budgeting to decide whether the $12,000,000 River Park Lodge expansion would be a good investment. Assume Kyler Valley's managers developed the following estimates concerning the expansion: (Click the icon to view the estimates.) Assume that Kyler Valley uses the straight-line depreciation method and expects the lodge expansion to have a residual value of $850,000 at the end of its ten-year life. The average annual operating income from the expansion is $1,773,400 and the depreciation has been calculated as $1,115,000. Calculate the ARR. Round to two decimal places ARR Data Table 120 skiers Number of additional skiers per day Average number of days per year that weather conditions allow skiing at Kyler Valley 145 days Useful life of expansion (in years) 10 years 244 Average cash spent by each skier per day 78 Average variable cost of serving each skier per day 12,000,000 Cost of expansion 8% Discount rate
Explain it early and correctly. Not explain in excel works
The city council is considering a proposal about purchasing a new landfill site. Both the current landfill and new landfill would be usable for the next 10 years. The purchase price is $279,000 and the preparatory work will cost $77,800. It is estimated that the new landfill will cost $51,000 less per year to operate than the current landfill. Assume a hurdle rate of 8%. Ignore tax impacts. Required: Calculate the net present value of the new landfill. Should the city council approve the project on financial grounds? Calculate the internal rate of return for the new landfill. Should the city council approve the project on financial grounds?
The city of Columbia is considering extending the runways of its municipal airport so that commercial jets can use the facility. The land necessary for the runway extension is currently a farmland that can be purchased for $350,000. Construction costs for the runway extension are projected to be $600,000, and the additional annual maintenance costs for the extension are estimated to be $22,500. If the runways are extended, a small terminal will be constructed at a cost of $250,000. The annual operating and maintenance costs for the terminal are estimated at $75,000. Finally, the projected increase in flights will require the addition of two air traffic controllers at an annual cost of $100,000. Annual benefits of the runway extension have been estimated as follows (shown): Apply the B–C ratio method with a study period of 20 years and a MARR of 10% per year to determine whether the runways at Columbia Municipal Airport should be extended.
A proposed project requires an investment of $250,000 and will require an additional $60,000 for upgrades in year five. The income from the project is expected to be $65,000 in years one through four and $50,000 in years six through seven. In year five, revenue to be in ye of the $60,000 spent for upgrades). There is not salvage value. If the external reinvestment rate of 8% is available, what is the rate of return for this project using the ERR method? $250,000 $65,000 $65,000 $65,000 $65,000 TITT $60,000 $50,000 $50,000
A community is looking to build a dam over a stretch of river that is currently being used for recreation. The dam will generate electricity. The dam will have a useful life of 50 years after which its reservoir will be full of sediment and the dam will need to be removed. The following are the characteristics of the dam:Initial cost: $350,000,000Electricity produced: 200,000 MWh per year at $150/MWh Value of recreation lost: $20,000,000 per year a. If the social discount rate is a constant 2% per year, is the dam a good idea? Show your work and explain your rationale.
Rare Agri-Products Ltd. is considering a new project with a projectedlife of seven (7) years. The project falls under the government’ssubsidy program for encouraging local agricultural products and iseligible for a one-time rebate of 25% on any initial equipmentinstalled for the project. The initial equipment (IE) will cost$41,000,000. At the end of year 1, an additional equipment (AE) costing$2,500,000 will be needed at the end of year 3. At the end of seven(7) years, the original equipment, IE, will have no resale value butthe supplementary equipment, AE, can be sold for $50,000. A workingcapital of $1,350,000 will be needed.The project is forecast to generate sales of agri-products over theseven years as follows:Year 1 70,000 unitsYear 2 100,000 unitsYears 3-5 250,000 unitsYears 6-7 325,000 unitsA sale price of $150 per unit for the first two years is expected andthen decline to $90 per unit thereafter as the newness of the productloses some sheen. The variable expenses will amount…
Rare Agri-Products Ltd. is considering a new project with a projectedlife of seven (7) years. The project falls under the government’ssubsidy program for encouraging local agricultural products and iseligible for a one-time rebate of 25% on any initial equipmentinstalled for the project. The initial equipment (IE) will cost$41,000,000. At the end of year 1, An additional equipment (AE) costing$3,500,000 will be needed at the end of year 3. At the end of seven(7) years, the original equipment, IE, will have no resale value butthe supplementary equipment, AE, can be sold for $50,000. A workingcapital of $1,350,000 will be needed.The project is forecast to generate sales of agri-products over theseven years as follows:Year 1 70,000 unitsYear 2 100,000 unitsYears 3-5 250,000 unitsYears 6-7 325,000 unitsA sale price of $150 per unit for the first two years is expected andthen decline to $90 per unit thereafter as the newness of the productloses some sheen. The variable expenses will amount…
Rare Agri-Products Ltd. is considering a new project with a projectedlife of seven (7) years. The project falls under the government’ssubsidy program for encouraging local agricultural products and iseligible for a one-time rebate of 25% on any initial equipmentinstalled for the project. The initial equipment (IE) will cost$41,000,000. At the end of year 1, An additional equipment (AE) costing$3,500,000 will be needed at the end of year 3. At the end of seven(7) years, the original equipment, IE, will have no resale value butthe supplementary equipment, AE, can be sold for $50,000. A workingcapital of $1,350,000 will be needed.The project is forecast to generate sales of agri-products over theseven years as follows:Year 1 70,000 unitsYear 2 100,000 unitsYears 3-5 250,000 unitsYears 6-7 325,000 unitsA sale price of $150 per unit for the first two years is expected andthen decline to $90 per unit thereafter as the newness of the productloses some sheen. The variable expenses will amount…
The government plans to increase the capacity of her existing water transmission lines in Cebu City. Two plans are under consideration. Plan A requires the construction of a parallel pipeline, the flow being maintained by gravity. The initial cost is P182,947,337 and the life is 50 years, with an annual operating cost of P5,725,635 for the 1st 25 years and P11,441,794 for the next 25 years. Plan B requires the construction of a booster pumping station costing P100M with the life of 50 years. The pumping equipment cost an additional amount of P25M, it has a life of 25 years and a salvage value of P2M. The annual operating cost is P5M. Using the Present Value (PV) Method and an interest of 23% cpd. annually, what is the PV of Plan A?

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