The following three mutually exclusive alternative proposals are being considered for flood proofing a factorybuilding that is located in an area subject to occasional flooding by a nearby river.1. Do nothing: Damage to the building in a moderate flood is $11,000 and in a severe flood it is $24,000.2. Protect the building with a one-time initial expenditure of $20,000 so that the building can withstandmoderate flooding without any damage and withstand severe flooding with only a $12,000 damage.3. Protect the building with a one-time initial expenditure of $32,000 so that the building can withstand anyflooding with no damage at all.In any year, there is a 20% probability of moderate flooding and a 10% probability of severe flooding. Using aMARR of 12% per year and a service life of 8 years, determine which of the three alternatives is the mosteconomical.(a) Calculate EUAC values for each scenario (use negative numbers for costs)The expected EUAC for the "Do Nothing" alternative is $ 3724 (Round to the nearest whole number.)The expected EUAC for Alternative 2 is $ 3994 (Round to the nearest whole number.)The EUAC for Alternative 3 is $13466 (Round to the nearest whole number.)(b) The most economical alternative isA. Alternative 3B. Do nothingOC. Alternative 2

Equivalent Annual Cost (EAC) is the yearly cost of owning, operating, and maintaining an asset over…

Answered: The following three mutually exclusive…

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 private gym is looking at a new set of sports equipment with an installed cost of $465,000. This cost will be depreciated straight-line to zero over the project's five-year life, at the end of which the sports equipment can be scrapped for (TIP: "scrapped for" = sold for) $61,000. The sports equipment will save the gym $143,000 per year in pretax operating costs, and the equipment requires an initial investment in net working capital of $27,000. If the tax rate is 22 percent and the discount rate is 10 percent, what is the NPV of this project? (Do not round intermediate calculations and round your answer to 2 decimal places, e.g., 32.16.) NPV
In the aftermath of Hurricane Thelma, the U.S. Army Corps of Engineers is considering two alternative approaches to protect a freshwater wetland from the encroaching seawater during high tides. The first alternative, the construction of a 5-mile long, 20-foot-high levee, would have an investment cost of $25,000,000 with annual upkeep costs estimated at$725,000. A new roadway along the top of the levee would provide two major benefits: (1) improved recreational access for fishermen and (2) reduction of the driving distance between the towns at opposite ends of the proposed levee by 11 miles. The annual benefit for the levee has been estimated at $1,500,000. The second alternative, a channel-dredging operation, would have an investment cost of $15,000,000. The annual cost of maintaining the channel is estimated at $375,000. There are no documented benefits for the channel-dredging project. Using a MARR of 8% and assuming a 25-year life for either alternative, apply the incremental B–C…
The city is installing a new swimming pool in the east end recreation centre. One design being considered is a reinforced concrete pool that will cost $5000000 to install. Thereafter, the inner surface of the pool will need to be refinished and painted every 10 years at a cost of $450000 per refinishing. Assuming that the pool will have essentially an infinite life, what is the present worth of the costs associated with the pool design? The city uses a MARR of 6%. Review the following table and calculate the present worth of the project for a +5% change in refinishing costs. Round your answer to the nearest dollar. Parameter Construction Costs Refinishing Costs MARR [%] -10% -5% Base Case +5% +10% $5000000 $450000 6 Present Worth of -10% -5% 0% +5% Costs +10% Changes to Construction Costs Changes to refinishing Costs Changes to MARR ????? ?
Peyton Manufacturing is trying to decide between two different conveyor belt systems. System A costs $260,000, has a four-year life, and requires $80,000 in pretax annual operating costs. System B costs $366,000, has a six-year life, and requires $74,000 in pretax annual operating costs. Both systems are to be depreciated straight-line to zero over their lives and will have zero salvage value. Whichever system is chosen, it will not be replaced when it wears out. The tax rate is 25 percent and the discount rate is 9 percent. Calculate the NPV for both conveyor belt systems. (A negative answer should be indicated by a minus sign. Do not round intermediate calculations and round your answers to 2 decimal places, e.g.. 32.16.) System A System B Which conveyor belt system should the firm choose? O System A O System B 4
A toll bridge across the Mississippi River is being considered as a replacement for the current 1-40 bridge linking Tennessee to Arkansas. Because this bridge, if approved, will become a part of the U.S. Interstate Highway system, the B-C ratio method must be applied in the evaluation. Investment costs of the structure are estimated to be $17,500,000, and $334,000 per year in operating and maintenance costs are anticipated. In addition, the bridge must be resurfaced every fifth year of its 25-year projected life at a cost of $1,200,000 per occurrence (no resurfacing cost in year 25). Revenues generated from the toll are anticipated to be $2,500,000 in its first year of operation, with a projected annual rate of increase of 1.75% per year due to the anticipated annual increase in traffic across the bridge. Assuming zero market (salvage) value for the bridge at the end of 25 years and a MARR of 11% per year, should the toll bridge be constructed? Also, assume that the initial surfacing…
A toll bridge across the Mississippi River is being considered as a replacement for the current 1-40 bridge linking Tennessee to Arkansas. Because this bridge, if approved, will become a part of the U.S. Interstate Highway system, the B-C ratio method must be applied in the evaluation. Investment costs of the structure are estimated to be $19,000,000, and $332,000 per year in operating and maintenance costs are anticipated. In addition, the bridge must be resurfaced every fifth year of its 30-year projected life at a cost of $1,300,000 per occurrence (no resurfacing cost in year 30). Revenues generated from the toll are anticipated to be $2,400,000 in its first year of operation, with a projected annual rate of increase of 2% per year due to the anticipated annual increase in traffic across the bridge. Assuming zero market (salvage) value for the bridge at the end of 30 years and a MARR of 12% per year, should the toll bridge be constructed? Also, assume that the initial surfacing of…
A remotely located air sampling station can be powered by solar cells or by running an above ground electric line to the site and using conventional power. Solar cells will cost $17,400 to install and will have a useful life of 5 years with no salvage value. Annual costs for inspection, cleaning, and other maintenance issues are expected to be $2,100. A new power line will cost $26,000 to install, with power costs expected to be $1,000 per year. Since the air sampling project will end in 5 years, the salvage value of the line is considered to be zero. NOTE: This is a multi-part question. Once an answer is submitted, you will be unable to return to this part.At an interest rate of 10% per year and using an AW analysis, which alternative should be selected? The annual worth of installing solar cells is $− , and the annual worth of installing a new power line is $− . The alternative to be selected is .
2) The council members of a small town have decided that the earth levee that protects the town flooding should be rebuilt and strengthened. The town engineer estimates that the cost of the work at the end of the first year will be $85,000. He estimates that in subsequent years the annual repair costs will decline by $10,000 making the second-year cost $75,000; the third year $65,000, and so forth. The council members want to know what the equivalent present cost is for the first 5 years of repair work if annual effective interest is 4%.
Hi! I'm having difficulty comparing the choices between raising a large amount of cash in the capitaal market verses the bond market. I have to make a decision as to what is best and why, all while considering ethical implications of financial reporting and how it relates to acquiring additional investors and accessing markets for additional capital. Consider the impact on the following on your choice: The company’s existing capital structure The company’s current market capitalization The company’s weighted average cost of capital The company’s degree of operating, financial and combined leverage
Rust Industrial Systems Company is trying to decide between two different conveyor belt systems. System A costs $350,000, has a 4-year life, and requires $141,000 in pretax annual operating costs. System B costs $430,000, has a 6-year life, and requires $135,000 in pretax annual operating costs. Both systems are to be depreciated straight- line to zero over their lives and will have zero salvage value. Whichever project is chosen, it will not be replaced when it wears out. The tax rate is 22 percent and the discount rate is 8 percent. Calculate the NPV for both conveyor belt systems. (A negative answer should be indicated by a minus sign. Do not round intermediate calculations and round your answers to 2 decimal places, e.g., 32.16.) System A System B Which conveyor belt system should the firm choose? ○ System B O System A
A remotely located air sampling station can be powered by solar cells or by running an above ground electric line to the site and using conventional power. Solar cells will cost $17,200 to install and will have a useful life of 5 years with no salvage value. Annual costs for inspection, cleaning, and other maintenance issues are expected to be $2,000. A new power line will cost $25,500 to install, with power costs expected to be $1,000 per year. Since the air sampling project will end in 5 years, the salvage value of the line is considered to be zero. At an interest rate of 10% per year and using an AW analysis, what must be the first cost of the above ground line to make the two alternatives equally attractive economically? The first cost of the above ground line to make the two alternatives equally attractive economically is $-1
The production manager on the Ofon Phase 2 offshore platform operated by Total S.A. must purchase specialized environmental equipment or an equivalent service. The first cost is $250,000 with an AOC of $66,000. The manager has let it be known that he does not care about the salvage value because he thinks it will make no difference in the decision-making process. His supervisor estimates the salvage might be as high as $100,000 or as low as $10,000 in 3 years, at which time the equipment will be unnecessary. Alternatively, a subcontractor can provide the service for $165,000 per year. The total offshore project MARR is 13% per year. Determine if the decision to buy the equipment is sensitive to the salvage value. The annual worth of high salvage value is $______________ 142,525 incorrect.. The annual worth of low salvage value is $_______________ 168,940 incorrect.. Decision is sensitive…

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