ENGINEERING ECONOMY(LOOSELEAF)
ENGINEERING ECONOMY(LOOSELEAF)
8th Edition
ISBN: 9781260152814
Author: Blank
Publisher: MCG
Question
Book Icon
Chapter 17, Problem 60P

(a):

To determine

Calculate the annual worth.

(a):

Expert Solution
Check Mark

Explanation of Solution

Time period is denoted by ‘n’ and after tax return is denoted by ‘i’. The remaining time period is denoted by ‘rn’. The annual value (AW) of defender can be calculated as follows:

AWDefender=(Market value(i(1+i)rn(1+i)rn1)+Salvage value(i(1+i)rn1)OE+((OE+First costSalvage valuen)×Effective tax rate))=(15,000(0.06(1+0.06)5(1+0.06)51)+2,000(0.06(1+0.06)51)1,200+((1,200+28,0002,00010)×0.06))=(15,000(0.2374)+2,000(0.1774)1,200+228)=4,178

The annual worth of the defender is -$4,178.

The annual worth (AW) of challenger can be calculated as follows:

AWChallenger=((First costChallenger(i(1+i)n(1+i)n1))+SalvageChallenger(i(1+i)n1)OEChallenger+(OEChallenger+First costChallengerSalvageChallengern)×Effective tax rate)=((15,000)(0.06(1+0.06)8(1+0.06)81)+3,000(0.1(1+0.06)81)1,500+(1,500+15,0003,0008)×0.06)=((15,000)(0.16104)+3,000(0.10104)1,500+180)=3,432

The annual worth of the challenger is -$3,432. Since the annual worth of the challenger is greater than the defender, select the challenger.

(b):

To determine

Calculate the annual worth through spreadsheet.

(b):

Expert Solution
Check Mark

Explanation of Solution

The annual worth of the defender and challenger can be calculated using spreadsheet as follows:

ENGINEERING ECONOMY(LOOSELEAF), Chapter 17, Problem 60P

(c):

To determine

Calculate the new annual worth.

(c):

Expert Solution
Check Mark

Explanation of Solution

The annual value (AW) of defender can be calculated as follows:

AWDefender=(Market value(i(1+i)rn(1+i)rn1)+Salvage value(i(1+i)rn1)OE)=(15,000(0.12(1+0.12)5(1+0.12)51)+2,000(0.12(1+0.12)51)1,200)=(15,000(0.2774)+2,000(0.1574)1,200)=5,046

The annual worth of the defender is -$5,046.

The spreadsheet function to calculate the annual worth of the defender is given below:

= -PMT(12%,5,-15000,2000) – 1200

The above function gives the value of -$5046.

The annual worth (AW) of challenger can be calculated as follows:

AWChallenger=((First costChallenger(i(1+i)n(1+i)n1))+SalvageChallenger(i(1+i)n1)OEChallenger)=((15,000)(0.12(1+0.12)8(1+0.12)81)+3,000(0.1(1+0.12)81)1,500)=((15,000)(0.16104)+3,000(0.10104)1,500)=4,276

The annual worth of the challenger is -$4,276. Since the annual worth of the challenger is greater than the defender, select the challenger.

The spreadsheet function to calculate the annual worth of the defender is given below:

= -PMT(12%,8,-15000,3000) – 1500

The above function gives the value of -$4,276.

Want to see more full solutions like this?

Subscribe now to access step-by-step solutions to millions of textbook problems written by subject matter experts!
Students have asked these similar questions
On the 1st of April 2018, the South African National Treasury increase the value-added tax rate from 14% to 15%. This policy change had a wide-ranging impact on society. Discuss some of the benefits and drawbacks of making use of this type of tax to generate government revenue and what we may expect in terms of its impact on inflation and GDP growth within the economy.   Please use some of the economics graphs to explain some scenarios
Eskom is South Africa’s monopoly power producer which the majority of South Africans depend on. Suppose there is extensive deregulation in the power industry. What is the impact of this deregulation on the industry? Help me on discussing the new market structure as well as the impact on supply and demand.     Use the relevant diagrams.
Discuss the impact of exchange rate volatility on the economy and its impact on your organisation. Make use of the relevant diagrams.

Chapter 17 Solutions

ENGINEERING ECONOMY(LOOSELEAF)

Ch. 17 - Prob. 11PCh. 17 - Prob. 12PCh. 17 - Prob. 13PCh. 17 - Prob. 14PCh. 17 - Prob. 15PCh. 17 - Prob. 16PCh. 17 - Prob. 17PCh. 17 - Prob. 18PCh. 17 - Prob. 19PCh. 17 - Prob. 20PCh. 17 - Prob. 21PCh. 17 - Prob. 22PCh. 17 - Prob. 23PCh. 17 - Prob. 24PCh. 17 - Prob. 25PCh. 17 - Prob. 26PCh. 17 - Prob. 27PCh. 17 - Prob. 28PCh. 17 - Prob. 29PCh. 17 - Prob. 30PCh. 17 - Prob. 31PCh. 17 - Prob. 32PCh. 17 - Prob. 33PCh. 17 - Prob. 34PCh. 17 - Prob. 35PCh. 17 - Prob. 36PCh. 17 - Prob. 37PCh. 17 - Prob. 38PCh. 17 - Prob. 39PCh. 17 - Prob. 40PCh. 17 - Prob. 41PCh. 17 - Prob. 42PCh. 17 - Prob. 43PCh. 17 - Prob. 44PCh. 17 - Prob. 45PCh. 17 - Prob. 46PCh. 17 - Prob. 47PCh. 17 - Prob. 48PCh. 17 - Prob. 49PCh. 17 - Prob. 50PCh. 17 - Prob. 51PCh. 17 - Prob. 52PCh. 17 - Prob. 53PCh. 17 - Prob. 54PCh. 17 - Prob. 55PCh. 17 - Prob. 56PCh. 17 - Prob. 57PCh. 17 - Prob. 58PCh. 17 - Prob. 59PCh. 17 - Prob. 60PCh. 17 - Prob. 61PCh. 17 - Prob. 62PCh. 17 - Prob. 63PCh. 17 - Prob. 64PCh. 17 - Prob. 65PCh. 17 - Prob. 66PCh. 17 - Prob. 67PCh. 17 - Prob. 68PCh. 17 - Prob. 69PCh. 17 - Prob. 70PCh. 17 - Prob. 71PCh. 17 - Prob. 72PCh. 17 - Prob. 73PCh. 17 - Prob. 74PCh. 17 - Prob. 75PCh. 17 - Prob. 76APQCh. 17 - Prob. 77APQCh. 17 - Prob. 78APQCh. 17 - Prob. 79APQCh. 17 - Prob. 80APQCh. 17 - Prob. 81APQCh. 17 - Prob. 82APQCh. 17 - Prob. 83APQCh. 17 - Prob. 84APQCh. 17 - Prob. 85APQCh. 17 - Prob. 86APQCh. 17 - Prob. 87APQCh. 17 - Prob. 88APQCh. 17 - Prob. 1CSCh. 17 - Prob. 2CSCh. 17 - Prob. 3CSCh. 17 - Prob. 4CS
Knowledge Booster
Background pattern image
Similar questions
SEE MORE QUESTIONS
Recommended textbooks for you
Text book image
ENGR.ECONOMIC ANALYSIS
Economics
ISBN:9780190931919
Author:NEWNAN
Publisher:Oxford University Press
Text book image
Principles of Economics (12th Edition)
Economics
ISBN:9780134078779
Author:Karl E. Case, Ray C. Fair, Sharon E. Oster
Publisher:PEARSON
Text book image
Engineering Economy (17th Edition)
Economics
ISBN:9780134870069
Author:William G. Sullivan, Elin M. Wicks, C. Patrick Koelling
Publisher:PEARSON
Text book image
Principles of Economics (MindTap Course List)
Economics
ISBN:9781305585126
Author:N. Gregory Mankiw
Publisher:Cengage Learning
Text book image
Managerial Economics: A Problem Solving Approach
Economics
ISBN:9781337106665
Author:Luke M. Froeb, Brian T. McCann, Michael R. Ward, Mike Shor
Publisher:Cengage Learning
Text book image
Managerial Economics & Business Strategy (Mcgraw-...
Economics
ISBN:9781259290619
Author:Michael Baye, Jeff Prince
Publisher:McGraw-Hill Education