The replacement of a planning machine is being considered by the Reardon Furniture Company. (There is an indefinite future need for this type of machine.) The best challenger will cost $25,000 for installation and will have an estimated economic life of 14 years and a $1,500 MV at that time. It is estimated that annual expenses will average $16,000 per year. The defender has a present BV of $5,500 and a present MV of $4000. Data for the defender for the next three years are given below. Using a before-tax interest rate of 12% per year, make a comparison to determine whether it is economical to make the replacement now. Year MV at End of BV at End of Expenses during Year 1 $3,000 Year $4,125 the Year $20,000 2 2,750 2,750 26,000 3 2,500 1,375 32,000 Click the icon to view the interest and annuity table for discrete compounding when i = 12% per year. Fill in the table for the EUAC values for the defender for years 1-3. (Round to the nearest dollar.) Year EUAC 1 2 3

The replacement of a planning machine is being considered by the Reardon Furniture Company. (There is an indefinite future need for this type of machine.) The best challenger will cost $25,000 for installation and will have an estimated economic life of 14 years and a $1,500 MV at that time. It is estimated that annual expenses will average $16,000 per year. The defender has a present BV of $5,500 and a present MV of $4000. Data for the defender for the next three years are given below. Using a before-tax interest rate of 12% per year, make a comparison to determine whether it is economical to make the replacement now. Year MV at End of BV at End of Expenses during Year 1 $3,000 Year $4,125 the Year $20,000 2 2,750 2,750 26,000 3 2,500 1,375 32,000 Click the icon to view the interest and annuity table for discrete compounding when i = 12% per year. Fill in the table for the EUAC values for the defender for years 1-3. (Round to the nearest dollar.) Year EUAC 1 2 3

Managerial Economics: Applications, Strategies and Tactics (MindTap Course List)

14th Edition

ISBN:9781305506381

Author:James R. McGuigan, R. Charles Moyer, Frederick H.deB. Harris

Publisher:James R. McGuigan, R. Charles Moyer, Frederick H.deB. Harris

Chapter17: Long-term Investment Analysis

Section: Chapter Questions

Problem 2E

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A Civil Engineer is considering establishing his own company. An investment of $4,000,000 will berequired, which will be recovered in 15 years.It is estimated that revenue will be $8,000,000 per year and that operating expenses will be as follows:Materials $1,600,000 per yearLabor $2,800,000 per yearOverhead $400,000 + 10% of the yearly revenueOther expenses $600,000 per yearThe engineer will give up his regular job paying $2,160,000 per year and devote his time fulltime to theoperation of the business; this will result in decreasing labor costs by $400,000 per year, material costs by$280,000 per year and overhead cost by $320,000 per year. If the man expects to earn at least 20% ofhis capital, should he invest? NOTE: Use Future Worth Method.
A Civil Engineer is considering establishing his own company. An investment of $4,000,000 will berequired, which will be recovered in 15 years.It is estimated that revenue will be $8,000,000 per year and that operating expenses will be as follows:Materials $1,600,000 per yearLabor $2,800,000 per yearOverhead $400,000 + 10% of the yearly revenueOther expenses $600,000 per yearThe engineer will give up his regular job paying $2,160,000 per year and devote his time fulltime to theoperation of the business; this will result in decreasing labor costs by $400,000 per year, material costs by$280,000 per year and overhead cost by $320,000 per year. If the man expects to earn at least 20% ofhis capital, should he invest? NOTE: Use Annual Worth Method.
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AMI, Inc., IS Considering the purchase ot a digital camera tor maintenance of design specitfications by teeding digital pictures directiy into an engineering workstation where computer-aided design files can be superimposed over the digital pIctures. Dittferences between the two images canbe noted, and corrections, as appropriate, can then be made by design engineers a. You have been asked by management to determine the PW of the EVA of this equipment, assuming the following estimates: capital investment = $326,000; market value at end of year six=$122,000, annual revenues = $122,000; annual expenses = $8,000; equipment life = 6 years;effective income tax rate = 25%, and after-tax MARR=8% per year. MACRS depreciation will be used with a five-year recovery period.b. Compute the PW of the equipment's ATCFs.
If we think the investment is sensitive to annual revenues, what is its breakeven point for the project?
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The following cost and benefit information has been estimated for a pump that has a 10-year useful life. Purchase Cost = $2,400 Annual Operating Cost = $1,200 Annual Maintenance Cost = $300Annual Benefits = $2,000Salvage Value = $200Interest rate specified = 9% or 0.09 Find the capital recovery cost for this pump.
A machine was bought three years ago for $200,000 with the expected life of 8 years and a salvage value of $20,000. It now can be sold for $100,000. The annual operating cost for this machine over the next five years will be $30,000. A new machine can be purchased for $250,000, a salvage value of $20,000, expected life-of 10 years, and an annual operating cost of $20,000. Should we replace the old machine? MARR= 10%
A steel construction company has one unit of production machinery purchased 5 years ago at a price of with a price of 120,000, projected technical life of 10 years with a residual value of 20,000. The production machine generates an average income of 25,000/year with an average operating cost of Rp 8,000. Currently a new machine with more advanced technology is available, the estimated price is 150,000. If the company purchases an advanced technology machine, it is estimated that the production will increase to 50,000/year without any increase in operating costs and the technical life of the machine is estimated to be 8,000 years. operating costs and the technical life of the machine is estimated at 8 years with a residual value of 55.000. A replacement is carried out, the old machine is sold for 60,000 but the price recorded by the company is 70,000. Please describe: a. Cash flow diagram of the two alternatives b. Evaluate and determine the best option if the interest rate is 8%/year.