Contemporary Engineering Economics (6th Edition)
6th Edition
ISBN: 9780134105598
Author: Chan S. Park
Publisher: PEARSON
expand_more
expand_more
format_list_bulleted
Question
Chapter 12, Problem 7P
(a):
To determine
Selection of the project.
(b):
To determine
Calculate the breakeven operating cost.
(c):
To determine
Calculate the present worth.
Expert Solution & Answer
Want to see the full answer?
Check out a sample textbook solution
Students have asked these similar questions
The cost of a replacement packaging machine if $95,000. The machine is anticipated
to reduce the packaging costs by $20 per parcel. The company expects to send out
25,000 parcels per year. The salvage values of the machine is anticipated to be
$23,000 at the end of 10 years. What is the present worth of the machine if the
after-tax MARR is 10%, the CCA rate is 20%, and the tax rate is 40%? [Enter your
response in $. Round to the nearest full dollar]
Peachtree Construction Company, a highway contractor, is considering the purchase of a new trench excavator that costs 300000 and can dig a 3-foot-wide trench at the rate of 16 feet per hour. The contractor gets paid according to the usage of the equipment, 100 per hour. The expected average annual usage is 500 hours, and maintenance and operating costs will be 10 per hour. The contractor will depreciate the equipment by using a five-year MACRS, units-of-production method. At the end of five years, the excavator will be sold for 100000. Assuming the contractor’s marginal tax rate is 25% per year, determine the annual after-tax cash flow. In excel.
A company is evaluating the addition of equipment to its present operations. They need to
purchase equipment for $160,000. The five year MACRS GDS Recovery Method is
appropriate for the investment and the total tax rate (federal plus state) is 40%. Gross revenue
is expected to be $30,000/year while maintenance costs are expected to be $5,000/year. It is
expected that the operation will be shut down at the end of the fourth year with a salvage value
of $20,000.
a- Draw a BTCFD
b- Prepare a table showing your development of the ATCF's.
c- If the company's aftertax MARRis 12%/year, is this a profitable investment?
Chapter 12 Solutions
Contemporary Engineering Economics (6th Edition)
Ch. 12 - Prob. 1PCh. 12 - Prob. 2PCh. 12 - Prob. 3PCh. 12 - Prob. 4PCh. 12 - Prob. 5PCh. 12 - Prob. 7PCh. 12 - Prob. 8PCh. 12 - Prob. 9PCh. 12 - Prob. 10PCh. 12 - Prob. 11P
Ch. 12 - Prob. 12PCh. 12 - Prob. 13PCh. 12 - Prob. 14PCh. 12 - Prob. 15PCh. 12 - Prob. 16PCh. 12 - Prob. 17PCh. 12 - Prob. 18PCh. 12 - Prob. 19PCh. 12 - Prob. 20PCh. 12 - Prob. 21PCh. 12 - Prob. 22PCh. 12 - Prob. 23PCh. 12 - Prob. 24PCh. 12 - Prob. 25PCh. 12 - Prob. 26PCh. 12 - Prob. 27PCh. 12 - Prob. 28P
Knowledge Booster
Similar questions
- A firm has the opportunity to invest in a project having an initial outlay of $20,000. Net cash inflows (before depreciation and taxes) are expected to be $5,000 per year for five years. The firm uses the straight-line depreciation method with a zero salvage value and has a (marginal) income tax rate of 40 percent. The firms cost of capital is 12 percent. Compute the IRR and the NPV. Should the firm accept or reject the project?arrow_forwardThe cost of grading and spreading gravel on a curvy rural road is expected to be $300,000. The road will have to be maintained at a cost of $24,000 per year. Even though the new road is not very smooth, it allows access to an area that previously could only be reached with off-road vehicles. The improved accessibility has led to a 198 % increase in the property values along the road. If the previous market value of the property was $900,000, calculate the conventional B/C ratio using an interest rate of 6% per year and a 20-year study period. The conventional B/C ratio isarrow_forwardA company considers introducing a new newspaper. Its direct competitor charges $0.25 at retail. The fixed cost charges to be $350,000 per month. The variable cost is $0.08 per copy, but advertising revenues of $0.05 per paper will be generated. To print the morning paper, the publisher has to purchase a new printing press, which will cost $620,000. The press machine will be depreciated according to a seven-year MACRS class. The press machine will be used for 10 years, at which time its salvage value would be about $100,000. Assume 365 issues per year, a 27% tax rate, and a 13% MARR. How many copies per day must be sold to break even at a retail selling price of $0.20 per paper?arrow_forward
- A firm can purchase a centrifugal separator (5-year MACRS property) for $22,000. The estimated salvage value is $4,000 after a useful life of six years. Operating and maintenance (O&M) costs for the first year are expected to be $2,200. These O&M costs are projected to increase by $1,000 per year each year thereafter. The income tax rate is 24% and the MARR is 11% after taxes. What must the uniform annual benefits be for the purchase of the centrifugal separator to be economical on an after-tax basis?arrow_forwardRaytheon wishes to use an automated environmental chamber in the manufacture of electronic components. The chamber is to be used for rigorous reliability testing and burn-in. It is installed for $1.4 million and will have a salvage value of $200,000 after 8 years. Its use will create an opportunity to increase sales by $650,000 per year and will have operating expenses of $250,000 per year. Corporate income taxes are 40 percent. Develop tables using a spreadsheet to determine the ATCF for each year and the after-tax PW, AW, for 8 years. After-tax MARR is 10 percent. Use 7- years class depreciation for MACRS and IRR if the chamber is keptarrow_forwardThe cost of grading and spreading gravel on a curvy rural road is expected to be $300,000 . The road will have to be maintained at a cost of $38,000 per year. Even though the new road is not very smooth, it allows access to an area that previously could only be reached with off-road vehicles. The improved accessibility has led to a 184% increase in the property values along the road. If the previous market value of the property was $900,000 , calculate the conventional B/C ratio using on interest rate of 6% per year and a 20-year study period.arrow_forward
- An organization completes the purchase of new asset at a cost of $25,000. It has an yearly operating cost of $3,000 for delivery and installation It has a depreciable life of six (6) years at the end of which the salvage value will be $3,000 Utilizing 200% Declining Balance (DB) only, complete the table below If a returm on investment (rate of return) of 10% is requred, what is the minimum annual saving in needed? If the service life is decreased from six (6) years to five (5) years, what is the minimum annual savings for the firm to acheive a 10% return on investment? If the annual operating cost increase by 109%, what will be the minimum annual savings needed? Round all answers up the the nearest dollar (i.e. $2.322 = $3.00)arrow_forwardWhat is the net effect on a project's NPV, if it's salvage value in 10 years increases from $24126 to $48252? Assume the discount rate is 8%, the CCA rate is 14.1%, the tax rate is 25%, and the half-year rule applies. a) $6734 b) $12520 c) $9393 d) $11262 e) $16860arrow_forwardRR must build a tunnel to maintain his access around the mountain. The tunnel could be fabricated of normal steel for an initial cost of $45,000 and should last for 18 years. Maintenance will cost $1,000 per year.Another option would be to use corrosion resistant steel, which will last for 18 years, with annual maintenance cost of $100. In 18 years there would be no salvage value for either bridge. RR pays combined federal and state taxes at the 48% marginal rate and uses straight-line depreciation. If the after tax MARR is 10%, what is the maximum amount that should be spent on the corrosion-resistant tunnel?arrow_forward
- ENGINEERING ECONOMICS install cost of the new machinery is $400,000 and is expected to last for 5 years. The salvage value is expected to be $30,000 in today's dollars. Revenue is expected to increase by $40,000 while operating costs are expected to increase $2500 (both actual). Determine the present worth of the project, assuming an (actual) MARR of 10%, a CCA rate of 10% and a corporate tax rate of 15%.arrow_forwardVigor Pharmaceuticals Ltd. is considering investing in a new production line for its pain-reliever medicine for individuals who suffer from cardiovascular diseases. The company has to invest in equipment which costs $2,500,000 and will be depreciated under the MACRS system for a 5-year asset class. It is expected to have a scrap value of $700,000 at the end of the project. Other than the equipment, the company needs to increase its cash and cash equivalents by $100,000, increase the level of inventory by $30,000, increase accounts receivable by $250,000 and increase account payable by $50,000 at the beginning of the project. Vigor Pharmaceuticals expect the project to have a life of five years. The company would have to pay for transportation and installation of the equipment which has an invoice price of $450,000. The company has already invested $75,000 in Research and Development and therefore expects a positive impact on the demand for the new pain-reliever. Expected annual sales…arrow_forwardA fire destroys Nancy's laptop that has a replacement value of $3,500 and an Actual cash value of $2000. Under which of the following homeowner policy, the insurer will pay for a maximum of $0 $2,000 $2,500 $3,500arrow_forward
arrow_back_ios
SEE MORE QUESTIONS
arrow_forward_ios
Recommended textbooks for you
Managerial Economics: Applications, Strategies an...EconomicsISBN:9781305506381Author:James R. McGuigan, R. Charles Moyer, Frederick H.deB. HarrisPublisher:Cengage Learning
Managerial Economics: Applications, Strategies an...
Economics
ISBN:9781305506381
Author:James R. McGuigan, R. Charles Moyer, Frederick H.deB. Harris
Publisher:Cengage Learning