Contemporary Engineering Economics (6th Edition)
6th Edition
ISBN: 9780134105598
Author: Chan S. Park
Publisher: PEARSON
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Question
Chapter 15, Problem 4P
a:
To determine
Calculate the floatation cost.
b:
To determine
Number of bond share to sold.
c:
To determine
Total annual cash requirement.
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As a result of improvements in product engineering, United Automation is able to sell one of its two milling machines. Both machines
perform the same function but differ in age. The newer machine could be sold today for $69,500. Its operating costs are $22,600 a
year, but at the end of five years, the machine will require a $18,700 overhaul (which is tax deductible). Thereafter, operating costs will
be $31,300 until the machine is finally sold in year 10 for $6,950.
The older machine could be sold today for $26,300. If it is kept, it will need an immediate $26,500 (tax-deductible) overhaul.
Thereafter, operating costs will be $34,900 a year until the machine is finally sold in year 5 for $6,950.
Both machines are fully depreciated for tax purposes. The company pays tax at 21%. Cash flows have been forecasted in real terms.
The real cost of capital is 13%.
a. Calculate the equivalent annual costs for selling the new machine and for selling the old machine. (Do not round intermediate…
Given the following marginal cost values for a given asset, determine the equivalent uniform annual cost for the first three years and identify the minimum cost life. Use an interest rate of 10%.
Year
Marginal cost of existing asset
1
$3,500
2
$3,150
3
$3,400
Two options of feed-water storage installation are being considered to serve over 20 years
of useful life:
Option 1: Build a 20,000-gallon tank on tower. The cost of installing the tank and tower
is estimated to be $170,000. The annual operating and maintenance cost after tax
adjustment is estimated to be $2,000. The salvage value is estimated to be negligible.
Option 2: Place a 20,000-gallon tank of equal capacity on a hill near the refinery. The cost
of installing the tank on the hill, including the extra length of service lines, is estimated to
be $120,000 with negligible salvage value. The annual operating and maintenance cost of
the water tank is estimated to be $1,500 after tax adjustment. Because of the location, an
additional investment of 13,000 in pumping equipment is required. The pumping
equipment is expected to have a service life of 10 years with a salvage value of $2,000 at
the end of that time. The annual operating and maintenance cost (including any incometax
effects)…
Chapter 15 Solutions
Contemporary Engineering Economics (6th Edition)
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