Contemporary Engineering Economics (6th Edition)
6th Edition
ISBN: 9780134105598
Author: Chan S. Park
Publisher: PEARSON
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Question
Chapter 10, Problem 1P
To determine
Calculate the time period.
Expert Solution & Answer
Explanation of Solution
The recovery rate under the General
Table-1
| Year | RR |
| 1 | 0.2 |
| 2 | 0.32 |
| 3 | 0.192 |
| 4 | 0.1152 |
| 5 | 0.1152 |
| 6 | 0.0576 |
Taxable gain (TG) can be calculated as follows.
Taxable gain is $0.
Table 2 shows the after tax cash flow. Column 2 is equal to net annual revenue. Column 3 is obtained by multiplying the RR value with the investment. When the investment is retired before its life time, then half of the depreciation is captured in the last year. Column 4 is obtained by subtracting the column 3 from column 2. Column 5 is obtained by multiplying the tax rate with column 4. Column 6 is obtained by subtracting the column 5 from column 2. Last year net cash flow is added with salvage value and subtract the taxable gain from it. Present worth (PW) can be obtained by multiplying the
Table-2
| 1 | 2 | 3 | 4 | 5 | 6 | 7 |
| Year | BTCF | D | TI | TAX | ATCF | PW |
| 0 | -65,000 | - | - | - | -55,000 | -65,000 |
| 1 | 23,000 | 13,000 | 10,000 | 4,000 | 19,000 | 16,522 |
| 2 | 23,000 | 20,800 | 2,200 | 880 | 22,120 | 16,726 |
| 3 | 23,000 | 12,480 | 10,520 | 4,208 | 18,792 | 12,356 |
| 4 | 23,000 | 7,488 | 15,512 | 6,205 | 16,795 | 9,603 |
| 5 | 23,000 | 7,488 | 15,512 | 6,205 | 16,795 | 8,350 |
| 6 | 23,000 | 3,744 | 19,256 | 7,702 | 15,298 | 6,614 |
| 7 | 5,170 |
The net present worth is $5,170. Since the present wroth is positive the project is acceptable.
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Students have asked these similar questions
A firm is considering purchasing a machine that costs $76,000. It will be used for six years, and the salvage value at
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The present worth of the project is $. (Round to the nearest dollar.)
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II
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Chapter 10 Solutions
Contemporary Engineering Economics (6th Edition)
Ch. 10 - Prob. 1PCh. 10 - Prob. 2PCh. 10 - Prob. 3PCh. 10 - Prob. 4PCh. 10 - Prob. 5PCh. 10 - Prob. 6PCh. 10 - Prob. 7PCh. 10 - Prob. 8PCh. 10 - Prob. 9PCh. 10 - Prob. 10P
Ch. 10 - Prob. 11PCh. 10 - Prob. 12PCh. 10 - Prob. 13PCh. 10 - Prob. 14PCh. 10 - Prob. 15PCh. 10 - Prob. 16PCh. 10 - Prob. 17PCh. 10 - Prob. 18PCh. 10 - Prob. 19PCh. 10 - Prob. 20PCh. 10 - Prob. 21PCh. 10 - Prob. 22PCh. 10 - Prob. 23PCh. 10 - Prob. 24PCh. 10 - Prob. 25PCh. 10 - Prob. 26PCh. 10 - Prob. 27PCh. 10 - Prob. 28PCh. 10 - Prob. 29PCh. 10 - Prob. 30PCh. 10 - Prob. 31PCh. 10 - Prob. 32PCh. 10 - Prob. 33PCh. 10 - Prob. 34PCh. 10 - Prob. 35PCh. 10 - Prob. 36PCh. 10 - Prob. 37PCh. 10 - Prob. 1STCh. 10 - Prob. 2STCh. 10 - Prob. 3STCh. 10 - Prob. 4STCh. 10 - Prob. 5ST
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