need 7 questions typed Answer and Calculation sheet

Question 1

You are given the following financial data about an assembly machine to be implemented at a company:

– Investment cost at year 0 (n=0) is \$22,000

– Investment cost at the end of the first year (n=1) is \$18,500

– Useful life: 15 years

– Salvage value (at the end of 15 years): \$7,000

– Annual revenues: \$18,000 per year

– Annual expenses: \$5,000 per year

– MARR: 10%

Assuming the first revenues and expenses will occur starting from the end of year 2, determine the conventional (without considering the time value of money or non-discounted) payback period.

Question 2

A large food-processing company is considering using laser technology to speed up and eliminate waste in the potato-peeling process. To implement the system, the company anticipates needing \$3.2 million to purchase the industrial-strength lasers. The system will save \$1,500,000 per year in labor and materials. However, it will incur an additional operating and maintenance cost of \$300,000 per year. Annual income taxes will be \$170,000. The system is expected to have a 10-year service life and a salvage value of \$200,000. If the company’s MARR is 18%, calculate the net present worth of this investment.

Question 3

You have been asked to evaluate investment of purchasing a parking lot under the following conditions:

– The proposal is for a parking lot costing \$4,000,000. The deck has an expected useful life of 15 years and a net salvage value of \$625,000 (after tax adjustment).

– The tenants have recently signed long-term leases, which leads you to believe that the current rental income of \$250,000 per year will remain constant for the first five years, then the rental income will increase by 10% for every five-year interval over the remaining asset life.

– The estimated operating expenses, including income taxes, will be \$65,000 for the first year and will increase by \$6,000 each year thereafter.

Considering an annual interest rate of 15%, what is the net present worth (NPW)?

Question 4

Would you accept the investment of the previous question? In other words, is it profitable?

Question 5

Consider the following project balances for a typical investment project with a service life of four years:

 n (end of year) Cashflow Amount Project Balance 0 -\$1,000 -\$1,000 1 \$100 -\$1,100 2 \$520 -\$800 3 \$460 -\$500 4 \$600 \$0

Determine the interest rate used in computing the project balance.

Question 6

Would the project of the previous question be acceptable at a MARR of 12%?

Question 7

Maintenance money for a new building at a college is being solicited from potential alumni donors. You would like to make a donation to cover all future expected maintenance costs of the building. These maintenance costs are expected to be \$48,000 per year for the first five years, \$60,000 per year for each of years 6 through 10, and \$72,000 annually after that (toward infinity under the assumption that the building has an indefinite service life). If the money is placed in an account that will pay 15% annual interest, how large should your gift be?

Question 8

In the previous question, what is the equivalent annual maintenance cost over the infinite service life?

Question 9

Consider the following two mutually exclusive projects:

 n Project A Project B 0 -\$15,000 -\$25,000 1 \$5,000 \$0 2 \$12,000 \$X 3 \$8,000 \$X PW (15%) ? \$9,600

The firm’s MARR is known to be 15%.

Compute the PW (15%) for Project A.

Question 10

In question 9, compute the unknown cash flow X in years 2 and 3 for Project B.

Question 11

In question 9, which project would you select?

Question 12

Consider the following two mutually exclusive investment projects:

 n Project A Project B 0 -\$15,000 -\$25,000 1 \$5,000 \$14,500 2 \$8,000 \$9,000 3 \$5,000 \$10,000 4 \$6,000

Using the least common multiple analysis period, determine the present worth of project A. Assume that i=12%.

Question 13

Using the least common multiple analysis period, determine the present worth of project B. Assume that i=12%.

Question 14

For questions 12 and 13, which project would you select?

Question 15

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 a 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 income-tax effects) for the pumping operation is estimated at \$1,000.

If the firm’s MARR is known to be 12%, what is the net present worth of option 1? (Use negative sign if needed)

Question 16

In the previous question, what is the net present worth of option 2? (Use negative sign if needed)

Question 17

For questions 15 and 16, which option would you choose?

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