The replacement of a laser cutting machine is being considered. The best available machine on market has an estimated economic life of 12 years with anequivalent annual worth of 5-24,800. The current used machine, which was bought six years ago for 548,000, has a present market value of 54,000 with thefollowing data for the next three years:OCS per YearEstimated Market ValueYearat End of Year, S20,0003,00025,0002,50030,0002,000Select when to replace the machine, using Economic Service Life method at an interest rate of 4% per year.O a) Replace nowO b) Replace in year oneO C) Replace in year twod) Replace in year three

Economic service life is described as the period in which replacing the machine is most beneficial…

The replacement of a laser cutting machine is being considered. The best available machine on market has an estimated economic life of 12 years with an equivalent annual worth of 5-24,800. The current used machine, which was bought six years ago for $48,000, has a present market value of $4,000 with the following data for the next three years: Estimated Market Value at End of Year, S Year S per Year 20,000 3,000 25,000 2,500 30,000 2,000 Select when to replace the machine, using Economic Service Life method at an interest rate of 4% per year. O a) Replace now O b) Replace in year one O ) Replace in year two O O Replace in year three

The replacement of a laser cutting machine is being considered. The best available machine on market has an estimated economic life of 12 years with an equivalent annual worth of 5-24,800. The current used machine, which was bought six years ago for $48,000, has a present market value of $4,000 with the following data for the next three years: Estimated Market Value at End of Year, S Year S per Year 20,000 3,000 25,000 2,500 30,000 2,000 Select when to replace the machine, using Economic Service Life method at an interest rate of 4% per year. O a) Replace now O b) Replace in year one O ) Replace in year two O O Replace in year three

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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Similar questions

Two machines with the following cost estimates are under consideration for a dishwasher assembly process. Using an interest rate of 10% per year, determine which alternative should be selected on the basis of an annual worth analysis.
A large standby electricity generator in a hospital operating room has a first cost of $67,250 and may be used for a maximum of 6 years. Its salvage value, which decreases by 15% per year, is described by the equation S = 67,250(1 − 0.15)n, where n is the number of years after purchase. The operating cost of the generator will be constant at $9,000 per year, and the interest rate is 12% per year. Determine the economic service life and associated AW values. The economic service life is 6 years and the AW value is $−__.
onsider the following financial informationabout a retooling project at a computer manufacturing company:• The project costs $2.5 million and has a five-yearservice life.• The retooling project can be classified as sevenyear property under the MACRS rule.• At the end of the fifth year, any assets held for theproject will be sold. The expected salvage valuewill be about 10% of the initial project cost.• The firm will finance 40% of the project moneyfrom an outside financial institution at an interestrate of 10%. The firm is required to repay the loanwith five equal annual payments.• The firm’s incremental (marginal) tax rate on theinvestment is 35%.• The firm’s MARR is 18%.With the preceding financial information,(a) Determine the after-tax cash flows.(b) Compute the annual equivalent worth for thisproject.
A piece of equipment has a first cost of $75000, a maximum useful life of 4 years, and a market (salvage) value described by the relation Sk = 60000 – 10500k, where k is the number of years since it was purchased. The AOC series is estimated using AOC= 30000 + 4500k. The interest rate is 9% per year. When should the company replace this asset?
The production department is proposing the purchase of an automatic insertion machine. It has identified 3 machines, each with an estimated life of 10 years. Which machine offers the best internal rate of return? Annual net cash flows Average investment Machine A only Machine B only Machine C only O Machines A and B Machine A $ 50,000 250,000 Machine B $ 40,000 300,000 Machine $ 75,000 500,000
A three-year-old small crane is being considered for early replacement. Its current market value is $17,500. Estimated future market values and annual operating costs for the next five years are given in the table below. What is the economic life for this crane if the interest rate is 5.1% per year? Year 0 Market Value Annual Operating Cost $17,500 1 $15,110 $4,700 2 $12,930 $4,809 3 $10,110 $4,883 4 $7,400 $4,997 5 $- $5,095
Consider a piece of industrial equipment that has an installed cost of $ 100,000. The equipment is expected to generate $30,000 worth of annual energy saving during its 1st year of installation. The value of these annual savings is expected to increased at the rate at 5% per year because of increased fuel costs. Assumes that the equipment has a service life of 5 years ( or 3000 operating hrs per year) with no appreciable salvage value. Determine the equivalent and savings per each operating hours at i=14%.
A replacement electric motor is being considered for purchase. It is capable of providing 200 hp. The pertinent data are follows: Cost - 3200 dollars Maintenance Cost per year - 50 dollars Life expectancy - 14years Salvage value after - 1,429.93 dollars The motor is used for 400 h/year and the cost of electricity is 0.0 dollars/kWh. What is most nearly the effective annual cost using an interest rate of 10%
With the estimates shown below, Sarah needs to determine the trade-in (replacement) value of machine X that will render its AW equal to that of machine Y at an interest rate of 8% per year. Determine the replacement value. Machine X Machine Y 90,000 Market Value, S -40,000 for year 1,increasing by 2000 per year thereafter. 24,000 Annual Cost, $ per Year -59,500 Salvage Value Life, Years 19,500 The replacement value is $
The AW values for retaining a presently owned machine for additional years are shown in the table. Note that the values represent the AW amount for each of the n years that the asset is kept, i.e., if it is kept 5 more years, the annual worth is $−95,000 for each of the 5 years. Assume that future costs remain as estimated for the replacement study and that used machines like the one presently owned will always be available. (a) What is the ESL and associated AW of the defender at a MARR of 12% per year? (b) A challenger with an ESL of 7 years and an AWC = $-88,000 per year has been identified. Which AW will be less for the respective ESL periods? Retention Period, Years AW Value, $ per Year 1 -87,000 2 -93,000 3 -85,000 4 -83,000 5 -95,000 a) The ESL of the defender is_____ year(s) with the lowest AW of $_________ . b) The______________ has the lower AW at _________$ for n equal to ______ .
An injection molding system has a first cost of $200,000 and an annual operating cost of $69,000 in years 1 and 2, increasing by $5,500 per year thereafter. The salvage value of the system is 25% of the first cost regardless of when the system is retired within its maximum useful life of 5 years. Using a MARR of 11% per year, determine the ESL and the respective AW value of the system. The ESL is ]year(s) and AW value of the system is $|
Lesego Ltd is considering an investment in a new machine for the production of a new product, X. There are two possibilities, Machine A and Machine B. Both product X and the machine would have an expected life of five years.The following information is available:Product X Selling price $50Variable cost 32Increase in fixed overhead (excluding depreciation of the new machine) is $90,000 per year.YearSales units 1 10,0002 15,0003 20,0004 20,0005 5,000 Machine A Machine BInitial cost ($000) 550 480Residual value 50 30The company’s cost of capital is 10%,Required:Evaluate each machine, using the following methods:Accounting rate of return Payback;Net present value. Discuss the importance of capital budgeting in organisations.

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