The New England Soap Company is considering adding some processing equipment to the plant to aid in the removal of impurities from some raw materials. By adding the processing equipment, the firm can purchase lower-grade raw material at reduced cost and upgrade it for use in its products. Four different pieces of processing equipment
The New England Soap Company is considering adding some processing equipment to the plant to aid in the removal of impurities from some raw materials. By adding the processing equipment, the firm can purchase lower-grade raw material at reduced cost and upgrade it for use in its products. Four different pieces of processing equipment
Chapter1: Making Economics Decisions
Section: Chapter Questions
Problem 1QTC
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Question
Please do 8-38
![8-38
A
Which alternative should be selected? Use a
challenger-defender rate of return analysis.
The New England Soap Company is considering
adding some processing equipment to the plant to
aid in the removal of impurities from some raw
materials. By adding the processing equipment,
the firm can purchase lower-grade raw material at
reduced cost and upgrade it for use in its products.
Four different pieces of processing equipment
with 15-year lives are being considered:
A
B
C
D
Initial investment $8,500 $18,500 26,500 $30,000
Annual saving in 3,500 6,000 7,400 9,000
materials costs
Annual operating 2,100 3,000 3,200 4,100
cost
The company can obtain a 13% annual return on its
investment in other projects and is willing to invest
money on the processing equipment only as long as](/v2/_next/image?url=https%3A%2F%2Fcontent.bartleby.com%2Fqna-images%2Fquestion%2Fc10cce41-ef51-4545-a724-9736e236d3b7%2Fe45090e6-fff2-4a3e-8090-0ce26dc4c726%2Fkh6dytc_processed.jpeg&w=3840&q=75)
Transcribed Image Text:8-38
A
Which alternative should be selected? Use a
challenger-defender rate of return analysis.
The New England Soap Company is considering
adding some processing equipment to the plant to
aid in the removal of impurities from some raw
materials. By adding the processing equipment,
the firm can purchase lower-grade raw material at
reduced cost and upgrade it for use in its products.
Four different pieces of processing equipment
with 15-year lives are being considered:
A
B
C
D
Initial investment $8,500 $18,500 26,500 $30,000
Annual saving in 3,500 6,000 7,400 9,000
materials costs
Annual operating 2,100 3,000 3,200 4,100
cost
The company can obtain a 13% annual return on its
investment in other projects and is willing to invest
money on the processing equipment only as long as
![it can obtain 14% annual return on each increment
of money invested. Which one, if any, of the alterna-
tives should be selected? Use a challenger-defender
rate of return analysis.
Cash vs. Loan vs. Lease
-39 Frequently we read in the newspaper that one should
lease a car rather than buying it. For a typical 24-
month lease on a car costing $9400, the monthly
lease charge is about $267. At the end of the 24
months, the car is returned to the lease company
(which owns the car). As an alternative, the same car
could be bought with no down payment and 24 equal
monthly payments
17% nominal
with](/v2/_next/image?url=https%3A%2F%2Fcontent.bartleby.com%2Fqna-images%2Fquestion%2Fc10cce41-ef51-4545-a724-9736e236d3b7%2Fe45090e6-fff2-4a3e-8090-0ce26dc4c726%2F5d16479_processed.jpeg&w=3840&q=75)
Transcribed Image Text:it can obtain 14% annual return on each increment
of money invested. Which one, if any, of the alterna-
tives should be selected? Use a challenger-defender
rate of return analysis.
Cash vs. Loan vs. Lease
-39 Frequently we read in the newspaper that one should
lease a car rather than buying it. For a typical 24-
month lease on a car costing $9400, the monthly
lease charge is about $267. At the end of the 24
months, the car is returned to the lease company
(which owns the car). As an alternative, the same car
could be bought with no down payment and 24 equal
monthly payments
17% nominal
with
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