EBK ENGINEERING ECONOMY
16th Edition
ISBN: 9780133819014
Author: Koelling
Publisher: YUZU
expand_more
expand_more
format_list_bulleted
Videos
Textbook Question
Chapter 5, Problem 48P
The prospective exploration for oil in the outer continental shelf by a small, independent drilling company has produced a rather curious pattern of cash flows, as follows:
The$1,500,000 expense at EOY 10 will be incurred by the company in dismantling the drilling rig
- a. Over the 10-year period, plot PW versus the interest rate (i) in an attempt to discover whether multiple
rates of return exist. (5.6) - b. Based on the projected net cash flows and results in Part (a), what would you recommend regarding the pursuit of this project? Customarily, the company expects to earn at least 20% per year on invested capital before taxes. Use the ERR method (∈ = 20%). (5.7)
Expert Solution & Answer
Want to see the full answer?
Check out a sample textbook solution
Students have asked these similar questions
A$ 100,000 machine replacement project
indicates that it can generate, after-tax cash
flows, $ 35,000 per year over its 10-year
useful life. At the end of this period, it could
be sold for $ 10,000. Considering a Minimum
Attractive Rate of Return (MARR) of 10% per
year, select the equation by notation of
factors that calculates your Net Present Value
-100000 + 35000 (P/A,10%,9) + 10000 (P/F,10%,10)
-100000 + 35000 (P/A,10%,9) + 45000 (P/F,10%,10)
100000 – 35000 (P/A,10%,9) – 45000 (P/F,10%,10)
-100000 + 35000 (P/F,10%,10) + 10000 (P/A,10%,10)
Commercial You are a corporate account officer with the Commercial & In-
dustrial Bank Corporation (CIBC). One of your major manufacturing clients, who are re- tooling one of their factories, just bought a piece of customized machinery to be delivered in six months’ time. The company’s treasurer intends to initially finance the purchase in the short-term loan market for six months and inquires about the possibilities of locking in the borrowing cost now. The amount is USD 10m and the loan would be disbursed in a six months from now to be repaid in exactly one year’s time from now. The current SOFR term structure is as follows:
Maturity (D)
SOFR Rate (%)
30
0.15%
90
0.24%
180
0.33%
360
0.55%
Use excel to calculate
Define and calculate the SOFR forward Why or why not is it a good predictor for future SOFR rates?
At expiration, e., six months after entering into the agreement, the 180D 20 SOFR stands at 0.90%. Who wins and who loses?…
Suppose I develop a new carbonated beverage that has Pomegranate, Orange, Watermelon, Strawberry, and Apple juice. I trademark the name POWSA (to rhyme with
YOWSA for an intended marketing campaign about how deliciously refreshing it is... POWSA!!). Then I perfect the tastiest ingredient mix with the essential acronym aligned
components... POWSA!!
I believe it is possible to get a $10 million annual SOM by selling 10 million cans at $1 each while the cost (at that scale of operation) will be sixty cents per can. However, I
need to invest $20 million in the marketing, so I need a VC or angel investor to buy an equity stake for $20 million. I pitch the idea of getting Sugar Ray Leonard to do the ads
for that "light-weight-sugar champion" POWSA Punch element of the marketing campaign. I claim the ad campaign with Sugar Ray would be effective with the $20 million
budget. Now suppose Warren Buffet agrees with all my numbers and also has a 10% opportunity cost of capital (he believes the $20…
Chapter 5 Solutions
EBK ENGINEERING ECONOMY
Ch. 5.A - Use the ERR method with = 8% per year to solve for...Ch. 5.A - Apply the ERR method with = 12% per year to the...Ch. 5.A - Are there multiple IRRs for the following...Ch. 5.A - Are there multiple IRRs for the following cash...Ch. 5 - Tennessee Tool Works (TTW) is considering...Ch. 5 - Prob. 2PCh. 5 - Prob. 3PCh. 5 - Prob. 4PCh. 5 - Prob. 5PCh. 5 - A large induced-draft fan is needed for an...
Ch. 5 - Prob. 7PCh. 5 - Prob. 8PCh. 5 - Prob. 9PCh. 5 - Prob. 10PCh. 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 - Prob. 19PCh. 5 - Prob. 20PCh. 5 - Determine the FW of the following engineering...Ch. 5 - Prob. 22PCh. 5 - Fill in Table P5-23 below when P = 10,000, S = 2,...Ch. 5 - Prob. 24PCh. 5 - A simple, direct space heating system is currently...Ch. 5 - Prob. 26PCh. 5 - Prob. 27PCh. 5 - Prob. 28PCh. 5 - Prob. 29PCh. 5 - Prob. 30PCh. 5 - Prob. 31PCh. 5 - Prob. 32PCh. 5 - Stan Moneymaker has been informed of a major...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 - Prob. 43PCh. 5 - To purchase a used automobile, you borrow 10,000...Ch. 5 - Your boss has just presented you with the summary...Ch. 5 - Experts agree that the IRR of a college education...Ch. 5 - A company has the opportunity to take over a...Ch. 5 - The prospective exploration for oil in the outer...Ch. 5 - Prob. 49PCh. 5 - An integrated, combined cycle power plant produces...Ch. 5 - A computer call center is going to replace all of...Ch. 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 - a. Calculate the IRR for each of the three...Ch. 5 - Prob. 61PCh. 5 - Prob. 62PCh. 5 - Prob. 63PCh. 5 - Prob. 64SECh. 5 - Prob. 65SECh. 5 - Prob. 66SECh. 5 - A certain medical device will result in an...Ch. 5 - Refer to Problem 5-61. Develop a spreadsheet to...Ch. 5 - Prob. 69CSCh. 5 - Prob. 70CSCh. 5 - Suppose that the average utilization of the CVD...Ch. 5 - Prob. 72FECh. 5 - Prob. 73FECh. 5 - Prob. 74FECh. 5 - Prob. 75FECh. 5 - Prob. 76FECh. 5 - Prob. 77FECh. 5 - Prob. 78FECh. 5 - Prob. 79FECh. 5 - A new machine was bought for 9,000 with life of...Ch. 5 - Prob. 81FECh. 5 - Prob. 82FECh. 5 - Prob. 83FECh. 5 - Refer to Problem 5-2. Assuming the residual value...
Knowledge Booster
Learn more about
Need a deep-dive on the concept behind this application? Look no further. Learn more about this topic, economics and related others by exploring similar questions and additional content below.Similar questions
- Nonearrow_forward3) Find the rate of return (IRR-Ch16.3) on a project that will cost $100,000 today and $400,000 in 3 years from today, BUT will return $50,000 at the end of every year for 11 years (4)arrow_forwardYou have received the proposal to invest $1,000,000 in exchange for receiving income of $75,000 at the end of the first month that would decrease 0.3% each month starting from the 2nd month. Expenses are estimated at $25,000 at each end of the month, starting from the 1st month. Assume that the proposal will last 5 years and that the minimum acceptable rate of return (m) is 1.5% per month. What does the Present Value criterion recommend? Show your work. If flow patterns are found (uniform, arithmetic, exponential), use factors.arrow_forward
- please help mearrow_forwardExample: A new process for a manufacturing process will have a first cost of $55,000 with annual costs of $38,000. Extra income associated with the new process is expected to be $62,000 per year. What is the payback period at i= 12% per year? a) 2.29 b) 3.00 c) 6.00 d) 2.14 CITIarrow_forwardA firm reports that its IRR for each quarter is 1.09%. What is the equivalent annual effective rate of return for this firm expressed in percentage terms to 3 digits after the decimal point?arrow_forward
- Give proper answer without photo answer and take a likearrow_forwardA company would like to invest on a project. The rate the company uses to justify their investments, i.e. the MARR is 25% per year (compounded yearly). Their estimations about the projects are as follows: Initial Cost: ($300,000)The Study Period: 15 yearsSalvage (Market) Value of the Project: 20% of the initial cost 1-) What is the capital recovery cost, CR? 2-) Operating costs in the first year are estimated to be ($7,500) and these operating costs are estimated to increase by 5% per year. Construct cash flow table and determine the minimum amount of annual revenue ($ per year?) that makes this investment an attractive option for the company? (i.e. what is Equivalent UNIFORM (Annual) Cost, EU(A)C?) 3-) Benefits in in the first year are estimated to be $30,000 and these benefits are estimated to increase by 13% per year. Construct cash flow table and determine the net present value/worth of the project, NPW. 4-) What is the simple payback period? 5-) Determine IRR of…arrow_forwardQuestion Number 5 You will deposit money into a bank account according to the following schedule: Today 4 year from today 6 years from today 8 years from today 12 years from today $182,000 $78,000 $136,000 $115,000 $94,000 After 12 years from today, what will be the purchasing power of the money in your bank account, expressed in today's dollars?. You bank pays interest at 7.000% per year, compounded annually. Inflation is expected to be 4.520% per year.arrow_forward
- Solve all this question......you will not solve all questions then I will give you down?? upvote...arrow_forwardNeed as soon as possible. Will upvote as long as correct and complete solution. Thank you! Correct Answers: DBM- 881,696.22 SFM- 3,896,123 SYD- 1,091,800 SLM- ?arrow_forwardLeis company is planning to borrow P10.5M for a company expansion and is not sure what the interest rate will be when it applies for the loanarrow_forward
arrow_back_ios
SEE MORE QUESTIONS
arrow_forward_ios
Recommended textbooks for you
Principles of Economics (12th Edition)EconomicsISBN:9780134078779Author:Karl E. Case, Ray C. Fair, Sharon E. OsterPublisher:PEARSON
Engineering Economy (17th Edition)EconomicsISBN:9780134870069Author:William G. Sullivan, Elin M. Wicks, C. Patrick KoellingPublisher:PEARSON
Principles of Economics (MindTap Course List)EconomicsISBN:9781305585126Author:N. Gregory MankiwPublisher:Cengage Learning
Managerial Economics: A Problem Solving ApproachEconomicsISBN:9781337106665Author:Luke M. Froeb, Brian T. McCann, Michael R. Ward, Mike ShorPublisher:Cengage Learning
Managerial Economics & Business Strategy (Mcgraw-...EconomicsISBN:9781259290619Author:Michael Baye, Jeff PrincePublisher:McGraw-Hill Education
Principles of Economics (12th Edition)
Economics
ISBN:9780134078779
Author:Karl E. Case, Ray C. Fair, Sharon E. Oster
Publisher:PEARSON
Engineering Economy (17th Edition)
Economics
ISBN:9780134870069
Author:William G. Sullivan, Elin M. Wicks, C. Patrick Koelling
Publisher:PEARSON
Principles of Economics (MindTap Course List)
Economics
ISBN:9781305585126
Author:N. Gregory Mankiw
Publisher:Cengage Learning
Managerial Economics: A Problem Solving Approach
Economics
ISBN:9781337106665
Author:Luke M. Froeb, Brian T. McCann, Michael R. Ward, Mike Shor
Publisher:Cengage Learning
Managerial Economics & Business Strategy (Mcgraw-...
Economics
ISBN:9781259290619
Author:Michael Baye, Jeff Prince
Publisher:McGraw-Hill Education
DATA GEMS: How to Access Income Data Tables and Reports From the CPS ASEC; Author: U.S. Census Bureau;https://www.youtube.com/watch?v=BWpVC-Clczw;License: Standard Youtube License