The Mowbot plant must replace ad existing HVAC unit (doing nothing is not an option). You are evaluating two pieces of equipment. Each unit offers a saving in annual energy cost over the existing equipment. Alternative Unit A Unit B Unit C Up front cost $44,000 $65,000 $84,000 Operating cost/year $1,900 $1,400 $900 Energy savings/ year $14,000 $16,500 $17,500 Salvage Value $2,000 $4,000 $5,000 Economic life, years 7 7. Mowbot's MARR is 12%. Based on annual worth analysis (not incremental), which unit should you recommend?

The Mowbot plant must replace ad existing HVAC unit (doing nothing is not an option). You are evaluating two pieces of equipment. Each unit offers a saving in annual energy cost over the existing equipment. Alternative Unit A Unit B Unit C Up front cost $44,000 $65,000 $84,000 Operating cost/year $1,900 $1,400 $900 Energy savings/ year $14,000 $16,500 $17,500 Salvage Value $2,000 $4,000 $5,000 Economic life, years 7 7. Mowbot's MARR is 12%. Based on annual worth analysis (not incremental), which unit should you recommend?

Cornerstones of Cost Management (Cornerstones Series)

4th Edition

ISBN:9781305970663

Author:Don R. Hansen, Maryanne M. Mowen

Publisher:Don R. Hansen, Maryanne M. Mowen

Chapter19: Capital Investment

Section: Chapter Questions

Problem 16E: Covington Pharmacies has decided to automate its insurance claims process. Two networked computer...

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The Mowbot plant must replace an existing HVAC unit (doing nothing is not an option). You are evaluating two pieces of equipment. Each unit offers a saving in annual energy cost over the existing equipment. Alternative Unit A Unit B Unit C Up front cost $44,000 $65,000 84,000 Operating cost/year $1,900 $1,400 $1,900 Energy savings / year $17,500 $19500 $22,500 Salvage Value $2,000 $4,000 $1,000 Economic life, years 5 7 8. Mowbot's MARR is 18%. Based on annual worth analysis (not incremental), which unit should you recommend?
We project unit sales for a new household-use laser-guided cockroach search and destroy system as follows: Year 1 2 3 4 5 Check my work Unit Sales 101,000 113,000 136,000 142,000 95,000 The new system will be priced to sell at $475 each. The cockroach eradicator project will require $2,200,000 in net working capital to start, and total net working capital will rise to 15% of the change in sales. The variable cost per unit is $345, and total fixed costs are $2,500,000 per year. The equipment necessary to begin production will cost a total of $22 million. This equipment is mostly industrial machinery and thus qualifies for CCA at a rate of 20%. In five years, this equipment will actually be worth about 20% of its cost. The relevant tax rate is 35%, and the required return is 17%. Based on these preliminary estimates, what is the NPV of the project? (Enter the answer in dollars. Do not round your intermediate calculations. Round the final answer to 2 decimal places. Omit $ sign in your…
Austins cell phone manufacturer wants to upgrade their product mix to encompass an exciting new feature on their cell phone. This would require a new high-tech machine. You are excited about his new project and are recommending the purchase to your board of directors. Here is the information you have compiled in order to complete this recommendation: According to the information, the project will last 10 years and require an initial investment of $800,000, depreciated with straight-line over the life of the project until the final value is zero. The firms tax rate is 30% and the required rate of return is 12%. You believe that the variable cost and sales volume may be as much as 10% higher or lower than the initial estimate. Your boss understands the risks but asks you to explain the alternatives in a brief memo to the board, Write a memo to the Board of Directors objectively weighing out the pros and cons of this project and make your recommendation(s).
Covington Pharmacies has decided to automate its insurance claims process. Two networked computer systems are being considered. The systems have an expected life of two years. The net cash flows associated with the systems are as follows. The cash benefits represent the savings created by switching from a manual to an automated system. The companys cost of capital is 10 percent. Required: 1. Compute the NPV and the IRR for each investment. 2. Show that the project with the larger NPV is the correct choice for the company.
The Fence Company is setting up a new production line to create top rails. The relevant data for two alternatives are shown below. Flow Line Manufacturing Cell Installed Cost Expected Life Salvage Value Variable Cost per Top Rail Click here to access the TVM Factor Table Calculator $15,000 5 years $0 $6.00 $10,000 5 years $0 $7.00
Your boss has told you to evaluate the cost of two machines.After some questioning, you are assured that they have thecosts shown at the right. Assume:a) The life of each machine is 3 years.b) The company thinks it knows how to make 14% oninvestments no riskier than this one.Determine via the present value method which machine topurchase. MACHINE A MACHINE BOriginal cost $13,000 $20,000Labor cost per year 2,000 3,000Floor space per year 500 600Energy (electricity) per year 1,000 900Maintenance per year 2,500 500Total annual cost $ 6,000 $ 5,000Salvage value $ 2,000 $ 7,000
We project unit sales for a new household-use laser-guided cockroach search and destroy system as follows: Year 1 2 3 4 5 Unit Sales 100, 500 NPV 112,500 135,500 141,500 94,500 The new system will be priced to sell at $470 each. The cockroach eradicator project will require $2,100,000 in net working capital to start, and total net working capital will rise to 15% of - the change in sales. The variable cost per unit is $340, and total fixed costs are $2,400,000 per year. The equipment necessary to begin production will cost a total of $22 million. This equipment is mostly industrial machinery and thus qualifies for CCA at a rate of 20%. In five years, this equipment will actually be worth about 20% of its cost. The relevant tax rate is 35%, and the required return is 16%. Based on these preliminary estimates, what is the NPV of the project? (Enter the answer in dollars. Do not round your intermediate calculations. Round the final answer to 2 decimal places. Omit $ sign in your…
2. A new automotive "dry paint" separation process is environmentally friendly and is expected to save BD8.00 per car painted at Isa Town plant. The installed cost for the process is BD8 million, and 250,000 cars are painted each year. What is the simple payback period of the process?
A cookie factory needs a new cookie machine. They have narrowed their choices to the following machines: a Cost $18000 25000 15000 Annual net savings 1055 2125 1020 IRR 7% 9% 8% Each machine has a 25-year useful life with no salvage value. If the MARR for this factory is 10%, which alternative should be chosen? (Incremental IRR analysis method is required)
2. Investing in Electrical Efficiency Two pumps capable of delivering 100 hp to an agricultural application are being evaluated in a present economy study. The selected pump will only be utilized for one year, and it will have no market value at the end of the year. Pertinent data are summarized as follows: Purchase price Maintenance cost Efficiency АВС Pump $2,900 $170 XYZ Pump $6,200 $510 80% 90% If electric power costs $0.10 per kWh and the pump will be operated 4,000 hours per year, which pump should be chosen? Recall that 1 hp = 0.746 kw.
We project unit sales for a new household-use laser-guided cockroach search and destroy system as follows: Year 12345 Unit Sales 101,000 113,000 136,000 142,000 95,000 The new system will be priced to sell at $475 each. The cockroach eradicator project will require $2,200,000 in net working capital to start, and total net working capital will rise to 15% of the change in sales. The variable cost per unit is $345, and total fixed costs are $2,500,000 per year. The equipment necessary to begin production will cost a total of $22 million. This equipment is mostly industrial machinery and thus qualifies for CCA at a rate of 20%. In five years, this equipment will actually be worth about 20% of its cost. The relevant tax rate is 35%, and the required return is 17%. Based on these preliminary estimates, what is the NPV of the project? (Enter the answer in dollars. Do not round your intermediate calculations. Round the final answer to 2 decimal places. Omit $ sign in your response.) NPV A
2. Choose from the two machines which is more economical? Machine A Machine B P 8,000 P 14,000 15 15 0 2,000 P 3,000 P 1,200 3% First Cost Life Salvage Value Annual Operation P 2,400 Annual Maintenance P 1,000 Taxes and Insurance 3% Which will you choose if minimum required profit is 16%. Use Rate of Return on Additional Investment, Annual Cost Method and Present Worth Method