You are starting a family pizza parlor and need to buy a motorcycle for delivery orders. You have two models in mind. Model A costs $8,500 and is expected to run for 7 years; Model B is more expensive, witha price of $14,900, and has an expected life of 10 years. The annual maintenance costs are $860 for Model A and $640 for Model B. Assume that the opportunity cost of capital is 11 percent. Calculate equivalent annual costs (EAC) of each models. (Do not round the discount factor. Round intermediate calculations and final answers to 2 decimal places, e.g. 15.25.)

You are starting a family pizza parlor and need to buy a motorcycle for delivery orders. You have two models in mind. Model A costs $8,500 and is expected to run for 7 years; Model B is more expensive, witha price of $14,900, and has an expected life of 10 years. The annual maintenance costs are $860 for Model A and $640 for Model B. Assume that the opportunity cost of capital is 11 percent. Calculate equivalent annual costs (EAC) of each models. (Do not round the discount factor. Round intermediate calculations and final answers to 2 decimal places, e.g. 15.25.)

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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Fantastic Footwear can invest in one of two different automated clicker cutters. The first, A, has a $150,000 first cost. A similar one with many extra features, B has a $579,000 first cost. A will save $50,000 per year over the cutter currently in use. B will save $160,000 per year. Each clicker cutter will last five years. If the MARR is 8 percent, which alternative is better? Use an IBB comparison should be chosen percent. For the increment from cutter A to cutter B, the IRR is percent. Therefore, For the increment from the do-nothing alternative to cutter A. the IRR is (Type integers or decimals rounded to one decimal place as needed.)
Elijah Enterprises will need to upgrade the computer system in 5 years. They anticipate the upgrade to cost $98,900. If the discount rate is 15%, what will be the required yearly investment needed to obtain the money for the upgrade?Round your (1+R)^n value to 2 decimal places and use that number for your final amount required rounded to the nearest dollar.
wallace inc is considering spending $100,000 for a new grinding machine. this amount could be invested to yield a 12% return. what is the opportunity cost?
You are preparing to produce some goods for sale. You will sell them in one year and you will incur costs of $86,000 immediately. If your cost of capital is 7.3%, what is the minimum dollar amount you need to sell the goods for in order for this to be a non-negative NPV? The minimum dollar amount is $. (Round to the nearest dollar)
Assume that you are thinking about starting your own small business. You have made the following estimates regarding this opportunity: You can rent a location for your business at a cost of $36, 000 per year. The equipment costs incurred to start the business would total $250,000. The equipment would have a 5-year useful life and a salvage value of S 25,000. Your company's estimated sales per year would equal $350,000 and its variable cost of goods sold would be 30% of sales. Other operating costs would include $56, 000 per year in salaries, S4, 000 per year for insurance, $25, 000 per year for utilities, and a 3% sales commission. The payback period for this investment opportunity is closest to: Multiple Choice 4.08 years, 2.20 years. 3.80 years. 3.08 years.
You are preparing to produce some goods for sale. You will sell them in one year and you will incur costs of $79,000 immediately. If your cost of capital is 7.2%, what is the minimum dollar amount you need to sell the goods for in order for this to be a non-negative NPV? The minimum dollar amount is $ (Round to the nearest dollar) COO
You are working on a bid to build four small apartment buildings a year for the next three years for a local community. This project requires the purchase of $900,000 of equipment which will be depreciated at a CCA rate of 30% over the next three years. The equipment can be sold at the end of the project for $400,000 (ignore any gains or losses). You plan to borrow half of the equipment cost at a rate of 5.5%. You will also need $200,000 in net working capital maintained over the life of the project. The labour costs are expected to be $100,000 per year, fixed costs will be $175,000 a year and the materials will be $140,000 per building per year. Your required rate of return is 12% for this project. Ignoring taxes, what is the minimal amount, that you should bid per building?
You have a opportunity to make a investment that has $10.000,000 landing, 1.500.000 machine, outsourcing 500.000 and finance cost 1.000.000. Machines have 1.000.000 scrap value at end of 4th year. You will pay interest payment at the end of project, that is $400.000. If you make this investment now, you will receive $4.500,000 one year from today, $3.000,000, $5.000,000 and $ 4.000,000 respectively. The appropriate discount rate for this investment is 14 percent. Tax rate is % 30. Should you make the investment?
Amphenol manufactures motor power connectors and is considering upgrading the production equipment to reduce costs over a 6-year planning horizon. The company can invest $80,000 now (year 0), 1 year from now, or 2 years from now. Depending on when the investment is made, the savings will vary. The savings estimates are $25,000, $26,000, and $29,000 per year for investing now, year 1, and year 2, respectively. If the company’s MARR is 20% per year, use an FW analysis to determine if the timing of the investment will return at least 20% per year.
You are preparing to produce some goods for sale. You will sell them in one year and you will incur costs of $86,000 immediately. If your cost of capital is 6.6%, what is the minimum dollar amount you need to sell the goods for in order for this to be a non-negative NPV?
You have just been offered a contract worth $1.21 million per year for 7 years. However, to take the contract, you will need to purchase some new equipment. Your discount rate for this project is 11.7%. You are still negotiating the purchase price of the equipment. What is the most you can pay for the equipment and still have a positive NPV? The most you can pay for the equipment and achieve the 11.7% annual return is $ 6.99 million. (Round to two decimal places.)
3

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