Contemporary Engineering Economics (6th Edition)
6th Edition
ISBN: 9780134105598
Author: Chan S. Park
Publisher: PEARSON
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Chapter 5, Problem 34P
To determine
Calculate the capitalized value.
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A company is considering investing $17,500 in a heat exchanger. The heat exchanger will last five years, at which time it will be sold for $2,000. The maintenance cost at the end of the first year is estimated to be $1,500.
Maintenance costs for the exchanger are estimated to increase by $1,000 per year over its life. As an alternative, the company may lease the equipment for $X per year, including maintenance, with the annual payments to made
at the end of each year.
a. Choose cash flow diagrams of both alternatives.
b. For what value of X should the company lease the heat exchanger? The company expects to earn 8% on its investments. Assume end-of-year lease payments.
Click the icon to view the interest and annuity table for discrete compounding when i= 8% per year.
$1,500 $1,500 $1,500 $1,500 $1,500
$1,500
$2,500
$3,500
$4,500
$5,500
$17,500
$17,500
Suppose we have four mutually exclusive projects, D1, D2, D3, and D4, whose internal rates of return on incremental investment between the projects is given as follows:IRR (Dl - D2) = 27.62%IRR {Dl - D3) = 14.26%IRR {Dl - D4) = 25.24%IRR (D3 - D2) = 30.24%IRR (D2- D4) = 17.34%IRR (D3 - D4) = 16.14%Which project should be selected at MARR 15%?
Please answer in short and ASAP
Chapter 5 Solutions
Contemporary Engineering Economics (6th Edition)
Ch. 5 - Prob. 1PCh. 5 - Prob. 2PCh. 5 - If a project costs 100,000 and is expected to...Ch. 5 - Refer to Problem 5.2, and answer the following...Ch. 5 - Prob. 5PCh. 5 - Prob. 6PCh. 5 - Prob. 7PCh. 5 - Prob. 8PCh. 5 - Consider the cash flows from an investment...Ch. 5 - Prob. 10P
Ch. 5 - Prob. 11PCh. 5 - Prob. 12PCh. 5 - Prob. 13PCh. 5 - Prob. 14PCh. 5 - Prob. 15PCh. 5 - Prob. 16PCh. 5 - Prob. 17PCh. 5 - Prob. 18PCh. 5 - Consider the project balances in Table P5.19 for a...Ch. 5 - Your RD group has developed and tested a computer...Ch. 5 - Prob. 21PCh. 5 - Prob. 22PCh. 5 - Prob. 23PCh. 5 - Prob. 24PCh. 5 - Prob. 25PCh. 5 - Prob. 26PCh. 5 - Prob. 27PCh. 5 - Prob. 28PCh. 5 - Prob. 29PCh. 5 - Prob. 30PCh. 5 - Prob. 31PCh. 5 - Prob. 32PCh. 5 - Geo-Star Manufacturing Company is considering a...Ch. 5 - Prob. 34PCh. 5 - Prob. 35PCh. 5 - Prob. 36PCh. 5 - Prob. 37PCh. 5 - Prob. 38PCh. 5 - Prob. 39PCh. 5 - Prob. 40PCh. 5 - Prob. 41PCh. 5 - Prob. 42PCh. 5 - Two methods of carrying away surface runoff water...Ch. 5 - Prob. 44PCh. 5 - Prob. 45PCh. 5 - Prob. 46PCh. 5 - Prob. 47PCh. 5 - Prob. 48PCh. 5 - Prob. 49PCh. 5 - Prob. 50PCh. 5 - Prob. 51PCh. 5 - Prob. 52PCh. 5 - Prob. 53PCh. 5 - Prob. 54PCh. 5 - Prob. 55PCh. 5 - Prob. 56PCh. 5 - Prob. 57PCh. 5 - Prob. 58PCh. 5 - Prob. 59PCh. 5 - Prob. 1STCh. 5 - Prob. 2ST
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- Saved 235 XYZ Gadget Company is currently considering which investment projects it should undertake. The following list of projects along with the estimated rate of return of each project is presented to the executive management team: Project A (8.5%) Project B (7%) Project C (6%) Project D (11%) Project E (5.5%) The current interest rate in the loanable funds market is 5%. However, if an increase in government borrowing pushes the interest rate to 7.5%, we would expect the company to discontinue investment plans for all but, of its planned projects.arrow_forwardMARR = 8%. Your consultancy business signs on with a new client. The client pays you $5000 up front as deposit toward future work. One year later the client makes another payment of $5000. The year after that you invest $16,000 into the project. The following year, in the third year, the client pays you the remaining balance of $5388. The project's precise ERR is within 0.5% of a) 12% b) 13% c) 4% d) 15% e) None of the abovearrow_forwardPlease answer step by step with explanation.arrow_forward
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- Question 3 Consider a proposal to enhance production of tortillas en a taqueria. The new machine is estimated to cost $33 million and will incur an additional $1.5 million per year in maintenance costs. The machine will produce annual savings of $4.5 million each year. The Minimum acceptable rate of return (MARR) is 8.5% per year, and the study period is five years at which time the machine will be obsolete (worthless). What is the maximum (minimum) percentage of initial investmet change that reverse your decision?arrow_forwardq5.25arrow_forwardYour firm has purchased an injection molding machine at a cost of $100,000. The machine's useful life is estimated to be eight years. Your accounting department has estimated the capital cost for this machine at about $25,455 per year. To expect a 15% return on your investment, how much additional annual revenue (after deducting any operating expenses) must be generatedarrow_forward
- Q6.39arrow_forwardCalculating the IRR for Project Long Project Long is expected to provide five years of cash inflows and to require an initial investment of $100,000. The required rate of return or discount rate that is appropriate for valuing the cash flows of Project Long is 17 percent. What is Project Long's IRR, and is it a good investment opportunity?arrow_forwardYou are considering a luxury apartment building project that requires an investment of $14,500,000. The building has 60 units. You expect the maintenance cost for the apartment building to be $450,000 the first year and $490,000 the second year. The maintenance cost will continue to increase by $40,000 in subsequent years. The cost to hire a manager for the building is estimated to be $100,000 per year. After five years of operation, the apartment building can be sold for $18,000,000. What is the annual rent per apartment unit that will provide a return on investment of 17%? Assume that the building will remain fully occupied during its five years of operation. The annual rent per apartment unit should be $ ______thousand. (Round to one decimal place.).arrow_forward
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