A small company heats its building and spends $8,400 per year on natural gas for this purpose. Costincreases of natural gas are expected to be 8% per year starting one year from now (i.e., the first cash flowis $9,072 at EOY one). Their maintenance on the gas furnace is $335 per year, and this expense is expectedto increase by 12% per year starting one year from now (i.e., the first cash flow for this expense is $375.20at the EOY one). If the planning horizon is 13 years, what is the total annual equivalent expense foroperating and maintaining the furnace? The interest rate is 18% per year.Click the icon to view the interest and annuity table for discrete compounding when i = 8% per year.Click the icon to view the interest and annuity table for discrete compounding when i = 12% per year.Click the icon to view the interest and annuity table for discrete compounding when i = 18% per year.The total annual equivalent expense for operating and maintaining the furnace is $two decimal places.)thousands. (Round to

The concept of Annual Equivalent Cost (AEC) is used to compare the cost-effectiveness of different…

Answered: The total annual equivalent expense for…

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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A company with $795,000 in operating assets is considering the purchase of a machine that costs $85,000 and which is expected to reduce operating costs by $17,000 each year. These reductions in cost occur evenly throughout the year. The payback period for this machine in years is closest to (Ignore income taxes.): (Round your answer to 1 decimal place.) Multiple Cholce 5 years 9.4 years 0.2 years 46.8 years
Lou Barlow, a divisional manager for Sage Company, has an opportunity to manufacture and sell one of two new products for a five- year period. His annual pay raises are determined by his division's return on investment (ROI), which has exceeded 19% each of the last three years. He computed the following cost and revenue estimates for each product: Product A Product B Initial investment: Cost of equipment (zero salvage value) $ 190,000 $ 400,000 Annual revenues and costs: Sales revenues $ 270,000 $ 370,000 Variable expenses $ 128,000 $ 178,000 Depreciation expense $ 38,000 $ 80,000 Fixed out-of-pocket operating costs $ 72,000 $ 52,000 The company's discount rate is 17%. Click here to view Exhibit 14B-1 and Exhibit 14B-2, to determine the appropriate discount factor(s) using tables. Required: 1. Calculate each product's payback period. 2. Calculate each product's net present value. 3. Calculate each product's internal rate of return. 4. Calculate each product's profitability index. 5.…
Lou Barlow, a divisional manager for Sage Company, has an opportunity to manufacture and sell one of two new products for a five-year period. His annual pay raises are determined by his division’s return on investment (ROI), which has exceeded 17% each of the last three years. He has computed the cost and revenue estimates for each product as follows: Product A Product B Initial investment: Cost of equipment (zero salvage value) $ 176,600 $ 390,000 Annual revenues and costs: Sales revenues $ 260,000 $ 360,000 Variable expenses $ 124,000 $ 174,000 Depreciation expense $ 36,000 $ 78,000 Fixed out-of-pocket operating costs $ 71,000 $ 50,000 The company’s discount rate is 15%. Click here to view Exhibit 12B-1 and Exhibit 12B-2, to determine the appropriate discount factor using tables. Required: 1. Calculate the payback period for each product. 2. Calculate the net present value for each product. 3. Calculate the internal rate of return for each…
The plant holds an inventory of 250, has accounts receivable outstanding of 100, and accounts payable outstanding of 100. There will be immediate, one-time reductions of inventory and accounts payable by 20%. What is the working capital?
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The total annual equivalent expense for operating and maintaining the furnace is $ two decimal places.) thousands. (Round to