The managers of a company are considering an investment with the following estimated cash flows. MARR is 20% per year. The company is inclined to make the investment; however, the managers are nervous because all of the cash flows and the useful life are approximate values. The capital investment is known to be within ±4%. Annual expenses are known to be within ± 10%. The annual revenue, market value, and useful life estimates are known to be within ±20%. a. Analyze the sensitivity of PW to changes in each estimate individually. Based on your results, make a recommendation regarding whether or not they should proceed with this project. Graph your results for presentation to management. b. The company can perform market research and/or collect more data to improve the accuracy of these estimates. Rank these variables by ordering them in accordance with the need for more accurate estimates (from highest need to lowest

The managers of a company are considering an investment with the following estimated cash flows. MARR is 20% per year. The company is inclined to make the investment; however, the managers are nervous because all of the cash flows and the useful life are approximate values. The capital investment is known to be within ±4%. Annual expenses are known to be within ± 10%. The annual revenue, market value, and useful life estimates are known to be within ±20%. a. Analyze the sensitivity of PW to changes in each estimate individually. Based on your results, make a recommendation regarding whether or not they should proceed with this project. Graph your results for presentation to management. b. The company can perform market research and/or collect more data to improve the accuracy of these estimates. Rank these variables by ordering them in accordance with the need for more accurate estimates (from highest need to lowest

ENGR.ECONOMIC ANALYSIS

14th Edition

ISBN:9780190931919

Author:NEWNAN

Publisher:NEWNAN

Chapter1: Making Economics Decisions

Section: Chapter Questions

Problem 1QTC

See similar textbooks

Similar questions

If the company's MARR is known to be 10%, is the investment justified?
Two alternative investments are being considered. Design A has an initial cost of $3 million and annual cost of 135,000 dollars per year. Design B has an initial cost of $3.7 million and annual cost of 70,000 dollars per year. What is the rate of return of design B as compared to design A? Hint it is between 5% and 10%. MY Answer is 9.29 % is it correct?
An equipment costing $57,500 is being considered for a production process at Dewey Chemicals. The expected benefits per year is $4,500 and estimated salvage value is $10,000. Determine the rate of return the company can get in this equipment proposal. Equipment life = 15 years.
Can you compute the PW of alternative A, the AW of alternative B, the FW of Alternative C, and the PW of alternative D? Also for a MARR of 12%, rank the MEAs from most profitable to least profitable. HINT: You will need to perform additional calculations before answering this question.
Consider the cashflow (n = 10 years, MARR = e = 14%) Cash Flow A Investment Revenues P 180,000 P 350,000 per year a. Calculate the annual worth (AW) of the project Expenses P 400,000 per year for the first 3 years, decreasing by P 50,000 per year thereafter Salvage Value P 40,000
Your firm is currently paying $3,000 a year to a commercial garbage collection agency to haul waste paper to the city dump. The paper could be sold as waste paper if it were baled and strapped. A paper baler is available at the following conditions: Purchase price = $6,500 Labor to operate baler = $3,500/year Strapping material = $300/year Life of baler = 30 years Salvage value = $500 MARR = 10%/year If it is estimated that 500 bales would be produced per year, what would the selling price per bale to a wastepaper dealer have to be to make this project acceptable? Assume no inflation.
The ROR analysis evaluates the increments between two alternatives in pairwise comparisons. Select one: O a. True Ob. False
select projects options are 3, 2, 1&3, 2&3, or 1&2
The following five alternatives that are evaluated by the rate of return method, If the alternatives are independent and the MARR is 15% per year, the onels) to select is (are) Incremental ROR, N. When Compared with Alternative Initial Investment,S Alternative Alternative A BC DE 10.6 27.3 194 353 25.0 -25,000 -35,000 13.1 38.5 24.4 -40,000 13.4 46.5 27.3 26.8 -60,000 25.4 -75,000 20.2 Only D O Only D and E O Only A D, and E O Only E
A distribution company is considering three different alternatives to satisfy their customer's demands. Their options are to rent a ready distribution center (D01), Rent and mobilize a center (D02), or outsourcing (OS). The estimate for each method is shown. The lifetime for D01, D02, and OS are 3, 6, and 2 respectively. MARR is 0.04 per year, and the percentage of change for all of the cases are 0 % Note: all units are in thousand $ D01 First Cost, $ Annual Operation Cost, $ Salvage Value, $ a: Calculate the Fw of D01? -136 -92 28 D02 OS -973 0 -59 -123 333 0
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)…
Value Lodges owns an economy motel chain and is considering building a new 200-unit motel. The cost to build the motel is estimated at $8.000.000; Value Lodges estimates furnishings for the motel will cost an additional $700.000 and will require replacement every 5 years. Annual operating and maintenance costs for the motel are estimated to be $800,000. The average rental rate for a unit is anticipated to be $40/day. Value Lodges expects the motel to have a life of 15 years and a salvage value of $900.000 at the end of 15 years. This estimated salvage value assumes that the furnishings are not new. Furnishings have no salvage value at the end of each 5-year replacement interval. Assuming average daily occupancy percentages of 50%, 60%, 70%, and 80% for years 1 through 4, respectively, and 90% for the 5th through 15th years, a MARR of 12%/year, 365 operating days/year, and ignoring the cost of land, should the motel be built? Base your decision on an internal rate of return analysis.…