Engineering Economy (17th Edition)
17th Edition
ISBN: 9780134870069
Author: William G. Sullivan, Elin M. Wicks, C. Patrick Koelling
Publisher: PEARSON
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Chapter 7, Problem 60SE
Refer to the chapter opener and Example 7-14. As an alternative to the coal-fired plant, PennCo could construct an 800 MW natural gas–fired plant. This plant would require the same initial investment of $1.12 billion dollars to be
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Refer to the chapter opener and Example 7-14. As an alternative to the coal-fired plant, PennCo could construct an 800 MW natural gas–fired plant. This plant would require the same initial investment of $1.12 billion dollars to be depreciated over its 30-year life using the SL method with SV30=0SV30=0. The capacity factor estimate of the plant would still be 80%, but the efficiency of the natural gas–fired plant would be 40%. The annual operating and maintenance expense is expected to be $0.01 per kWh. The cost of natural gas is $8.00 per million Btu and the carbon dioxide tax is $15 per metric ton. Natural gas emits 55 metric tons of carbon dioxide per billion Btu produced. The effective income tax rate is 25%, and the after-tax MARR is 10% per year. Based on the after-tax cost of electricity, create a spreadsheet to determine whether PennCo should construct a natural gas–fired or coal-fired plant. Note: 1kWh=3,413 Btu.
Chapter Opener - (1st image), Example - (2nd image)
For the…
RR 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?
Raytheon 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 kept
Chapter 7 Solutions
Engineering Economy (17th Edition)
Ch. 7 - How are depreciation deductions different from...Ch. 7 - Prob. 2PCh. 7 - Explain the difference between real and personal...Ch. 7 - Prob. 4PCh. 7 - Prob. 5PCh. 7 - Prob. 6PCh. 7 - Prob. 7PCh. 7 - Prob. 8PCh. 7 - Prob. 9PCh. 7 - Prob. 10P
Ch. 7 - Prob. 11PCh. 7 - Prob. 12PCh. 7 - Prob. 13PCh. 7 - Prob. 14PCh. 7 - A manufacturer of aerospace products purchased...Ch. 7 - Prob. 16PCh. 7 - Prob. 17PCh. 7 - Prob. 18PCh. 7 - Prob. 19PCh. 7 - Prob. 20PCh. 7 - Prob. 21PCh. 7 - Prob. 22PCh. 7 - Prob. 23PCh. 7 - Prob. 24PCh. 7 - Prob. 25PCh. 7 - Prob. 26PCh. 7 - Prob. 27PCh. 7 - Prob. 28PCh. 7 - Prob. 29PCh. 7 - Prob. 30PCh. 7 - Prob. 31PCh. 7 - Prob. 32PCh. 7 - Prob. 33PCh. 7 - Refer to Problem 6-79. The alternatives all have a...Ch. 7 - Prob. 35PCh. 7 - Prob. 36PCh. 7 - Prob. 37PCh. 7 - Prob. 38PCh. 7 - Prob. 39PCh. 7 - Prob. 40PCh. 7 - Prob. 41PCh. 7 - Prob. 42PCh. 7 - Prob. 43PCh. 7 - Prob. 44PCh. 7 - Prob. 45PCh. 7 - Prob. 46PCh. 7 - AMT, Inc., is considering the purchase of a...Ch. 7 - Prob. 48PCh. 7 - Prob. 49PCh. 7 - Prob. 50PCh. 7 - Prob. 51PCh. 7 - Prob. 52PCh. 7 - Determine the after-tax yield (i.e., IRR on the...Ch. 7 - A 529-state-approved Individual Retirement Account...Ch. 7 - Prob. 55PCh. 7 - Prob. 56PCh. 7 - Prob. 57SECh. 7 - Prob. 58SECh. 7 - Prob. 59SECh. 7 - Refer to the chapter opener and Example 7-14. As...Ch. 7 - Prob. 61FECh. 7 - The Parkview Hospital is considering the purchase...Ch. 7 - Prob. 63FECh. 7 - Prob. 64FECh. 7 - Prob. 65FECh. 7 - Prob. 66FECh. 7 - Prob. 67FECh. 7 - Prob. 68FECh. 7 - Prob. 69FECh. 7 - Prob. 70FECh. 7 - Prob. 71FECh. 7 - Prob. 72FECh. 7 - Prob. 73FECh. 7 - Prob. 74FECh. 7 - Prob. 75FECh. 7 - If the federal income tax rate is 35% and the...Ch. 7 - Prob. 77FECh. 7 - Acme Manufacturing makes their preliminary...Ch. 7 - Prob. 79FECh. 7 - Prob. 80FECh. 7 - Prob. 81FECh. 7 - Prob. 82FECh. 7 - Prob. 83FECh. 7 - Prob. 84FECh. 7 - Two insulation thickness alternatives have been...
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- 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_forwardIndividual industries will use energy as efficiently as it is economical to do so, and there are several incentives to improve the efficiency of energy consumption. To illustrate, consider the selection of a new water pump. The pump is to operate 800 hours per year. Pump A costs $2,000, has an overall efficiency of 80.58%, and it delivers 11 hp. The other available altemative, pump B, costs $1,200, has an overall efficiency of 44.39%, and delivers 12.8 hp. Both pumps have a useful life of five years and will be sold at that time. (Remember 1 hp = 0.746 kW.) Pump A will use SL depreciation over five years with an estimated SV of zero. Pump B will use the MACRS depreciation method with a class life of three years. After five years, pump A has an actual market value of $410, and pump B has an actual market value of $180. Using the IRR method on the after-tax cash flows and a before-tax MARR of 20%, is the incremental investment in pump A economically justifiable? The effective income tax…arrow_forwardAn asset used in a four-year project falls in the five-year MACRS class (MACRS schedule) for tax purposes. The asset has an acquisition cost of $7,400,000 and will be sold for $1,700,000 at the end of the project. If the tax rate is 21 percent, what is the aftertax salvage value of the asset? Note: Do not round intermediate calculations and round your answer to the nearest whole number, e.g., 32. Aftertax salvage valuearrow_forward
- SHOW SOLUTIONNNNNNNNNNNNNNNNNNNNNNNNNNNNNNNNNNNNNNNarrow_forwardCori's Meats is looking at a new sausage system with an installed cost of $495,000. This cost will be depreciated straight-line to zero over the project’s five-year life, at the end of which the sausage system can be scrapped for $73,000. The sausage system will save the firm $175,000 per year in pretax operating costs, and the system requires an initial investment in net working capital of $32,000. If the tax rate is 23 percent and the discount rate is 10 percent, what is the NPV of this project?arrow_forwardMilliken uses a digitally controlled dyer for placing intricate and integrated patterns on manufactured carpet squares for home and commercial use. It is purchased for $400,000. It is expected to last years and have a salvage value of $30.000. Increased net income due to this dyer is $95.000 per year. Milliken's tax rate is 40 percent, and the after-tax MARR is 12 percent. Develop tables using a spreadsheet to determine the ATCF for each year and the after-tax PW, AW, and IRR after 8 years. Use S-years class depreciation for MACRSarrow_forward
- Milliken uses a digitally controlled dyer for placing intricate and integrated patterns on manufactured carpet squares for home and commercial use. It is purchased for $400,000. It is expected to last years and have a salvage value of $30.000. Increased net income due to this dyer is $95.000 per year. Milliken's tax rate is 40 percent, and the after- tax MARR is 12 percent. Develop tables using a spreadsheet to determine the ATCF for each year and the after-tax PW, AW, and IRR after 8 years. Use S-years class depreciation for MACRSarrow_forwardSGS Golf Academy is evaluating different golf practice equipment. The "Dimple-Max" equipment costs $149,000, has a 4-year life, and costs $9,300 per year to operate. The relevant discount rate is 14 percent. Assume that the straight-line depreciation method is used and that the equipment is fully depreciated to zero. Furthermore, assume the equipment has a salvage value of $21,500 at the end of the project’s life. The relevant tax rate is 22 percent. All cash flows occur at the end of the year. What is the EAC of this equipment? Note: Your answer should be a negative value and indicated by a minus sign. Do not round intermediate calculations and round your answer to 2 decimal places, e.g., 32.16.arrow_forwardWe are evaluating a project that costs $2,190,000, has a 8-year life, and has no salvage value. Assume that depreciation is straight-line to zero over the life of the project. Sales are projected at 91,200 units per year. Price per unit is $38.97, variable cost per unit is $24.05, and fixed costs are $866,000 per year. The tax rate is 22 percent and we require a return of 11 percent on this project. Suppose the projections given for price, quantity, variable costs, and fixed costs are all accurate to within \pm 10 percent. Calculate the best-case and worst -case NPV figures.arrow_forward
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