Contemporary Engineering Economics (6th Edition)
6th Edition
ISBN: 9780134105598
Author: Chan S. Park
Publisher: PEARSON
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Chapter 10, Problem 2P
To determine
Calculate the net cash flow.
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Rust Industrial Systems Company is trying to decide between two different conveyor belt
systems. System A costs $295,000, has a four-year life, and requires $77,000 in pretax
annual operating costs. System B costs $355,000, has a six-year life, and requires
$83,000 in pretax annual operating costs. The company always needs a conveyor belt
system; when one wears out, it must be replaced. Assume the tax rate is 21 percent and
the discount rate is 8 percent.
Calculate the EAC for both conveyor belt systems. (A negative answer should be
indicated by a minus sign. Do not round intermediate calculations and round your
answers to 2 decimal places, e.g., 32.16.)
System A
System B
Which conveyor belt system should the firm choose?
System B
O System A
An automobile-manufacturing company is considering purchasing an industrial robot to
do spot welding, which is currently done by skilled labor. The initial cost of the robot is
$210,000, and the annual labor savings are projected to be $150,000. If purchased, the
robot will be depreciated under the double-declining balance method during a six-year
depreciable life period. The robot will be used for seven years, at the end of which time,
the firm expects to sell it for $60,000. The company's marginal tax rate is 35% over the
project period. Determine the net after-tax cash flows for each period over the project life.
Assume MARR = 15%.
One year ago, your company purchased a machine used in manufacturing for $120,000. You have learned that a new machine is available that offers many advantages and that you can purchase it for $160,000 today. The CCA rate applicable to both machines is 40%; neither machine will have any long-term salvage value. You expect that the new machine will produce earnings before interest, taxes, depreciation, and amortization (EBITDA) of $40,000 per year for the next ten years. The current machine is expected to produce EBITDA of $23,000 per year. All other expenses of the two machines are identical. The market value today of the current machine is $50,000. Your company's tax rate is 45%, and the opportunity cost of capital for this type of equipment is 12%.
What is the NPV of replacement?
Should your company replace its year-old machine?
//posted before but got wrong answer
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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