$250,000 is invested in equipment having a negligible salvage value regardless of the number of years used. O&M costs equal $60,000 the first year and increase $12,000 per year. Based on a MARR of 10%, what are the optimum replacement interval and minimum EUAC?

$250,000 is invested in equipment having a negligible salvage value regardless of the number of years used. O&M costs equal $60,000 the first year and increase $12,000 per year. Based on a MARR of 10%, what are the optimum replacement interval and minimum EUAC?

EBK CONTEMPORARY FINANCIAL MANAGEMENT

14th Edition

ISBN:9781337514835

Author:MOYER

Publisher:MOYER

Chapter10: Capital Budgeting: Decision Criteria And Real Option

Section: Chapter Questions

Problem 3P

See similar textbooks

Related questions

Q: A machine costing $25,000 to buy and $3,000 per year to operate will savemainly labor expenses in…

A: To determine the annual savings required to get return on investment of 12%. We use the PMT function…

Q: Cardinal Company is considering a five-year project that would require a $2,755,000 investment in…

A: simple rate of return: it is the return on the initial investment.it is expressed in the percentage…

Q: The equipment needed to manufacture a product costs $1,000,000 to purchase. This equipment has a…

A: SOLUTION- BREAK EVEN POINT IS THE POINT AT WHICH TOTAL REVENUE EQUALS TO TOTAL COST OR EXPENSES.

Q: what is the projects equivalent annual cost, or EAC?

Q: Cardinal Company is considering a five-year project that would require a $2,955,000 investment in…

A: Profitability index= Present value of future cashflows/ Initial investment. Initial Investment given…

Q: The initial cost of a van is $22,800; its salvage value after 5 years will be $8500. Maintenance is…

A: The equivalent uniform annual cost is the annual cost of maintaining and operating assets calculated…

Q: A CNC machine costs $220,000. A facility purchases one and plans to use it for 12 years, at which…

A: Double declining depreciation rate = Straight line depreciation rate x 2 = (100/12 years) x 2 =…

Q: The equipment needed to manufacture a product costs $1,000,000 to purchase. This equipment has a…

A: 1) Statement showing equivalent uniform annual cost associated with this equipment when 10.000 units…

Q: A bulldozer was bought for ₱ 0.50M and have an estimated useful life of 10 years after which it will…

A: Straight-line depreciation expense=Cost of Asset-Scrap ValueUseful Life

Q: $500,000 is invested in equipment having a salvage value equal to $500,000(0.80n) after n years of…

A: The frequency of replacements that will minimize EUAC is the optimum replacement interval . Minimum…

Q: Cardinal Company is considering a five-year project that would require a $2,755,000 investment in…

A: The payback period is a time period in which the company can recover its invested amount in the…

Q: A five-year project has an initial fixed asset investment of $280,000, an initial NWC investment of…

A: Equivalent Annual Cost (EAC) is the cost of owning an asset. It is used as an important tool for…

Q: A project under consideration costs $750,000, has a five-year life and has no salvage…

A: Here, Cost of the project = $750,000 Useful life =5 years Depreciation = Straight-Line Salvage value…

Q: meter, with both components assumed to be paid at year-end. Actual use is expected to be 1,500 hours…

A: The net advantage lost by rejecting a different course of action is known as opportunity cost. Its…

Q: Cardinal Company is considering a five-year project that would require a $2,890,000 investment in…

A: Net Operating Income $4,20,000 Add: Depreciation $5,78,000 Annual net Cash inflows $9,98,000…

Q: An equipment costing P120,000 is expected with an estimated economic life of 6 years, salvage…

A: The question is related to Capital Budgeting. The Net Present Value will be calculated with the help…

Q: An investment of 80,200 returned 20,000 per year over a five year useful life and then have a…

A: Capital budgeting is the process by which a corporation examines potential large projects or…

Q: Cardinal Company is considering a five-year project that would require a $2,955,000 investment in…

Q: A hydraulic lift is purchased for a warehouse for $60,000. This lift is expected to generate $7000…

A: Rate of Return on Investment = Net income/Total Investment Depreciation Expense = Cost of the…

Q: An injection-molding machine has a first cost of $1,050,000 and a salvage value of $225,000 in any…

A: Given, First Cost= $1,050,000 Salvage Value= $225,000 Maintenance & Operating Cost= $235,000…

Q: Cardinal Company is considering a five-year project that would require a $2,890,000 investment in…

A: Simple rate of return = Net operating income / Initial investment

Q: A company with $800,000 in operating assets is considering purchasing a machine that costs $300,000…

A: Payback period: Payback period is the length of time in which an investment reaches its break-even…

Q: operating income $ 509,000 Click here to view Exhibit 12B-1 and Exhibit 12B-2, to determine…

A: Depreciation is the decrease in value of asset due to wear and tear and due to passage of time.

Q: A factory asset has a first cost of $100,000, annual costs of $15,000 the first year and increasing…

A: Given, Initial cost =$100,000 Annual Costs = $15,000 increasing by 7.5%

Q: Cardinal Company is considering a five-year project that would require a $2,890,000 investment in…

A: Solution : Computation of Project profitability index - Cardinal Company Particulars Amount…

Q: Cardinal Company is considering a five-year project that would require a $2,955,000 investment in…

A: Discounting Factors @ 18% for 5 years Formula: = 1/(1+r)^n Year Computation Discount Factor 1…

Q: An injection molding system has a first cost of $175,000 and an annual operating cost of $95,000 in…

A: ESL means maximum life of the machinery up to which machine can provides positive cashflows. ESL is…

Q: To maintain its newly acquired equipment, the company need P40,000 per year for the first five years…

A: Present Value of Cash Flow = Cash Flow x Present Value Factor Present Value Factor = 1(1+r)n where,…

Q: A 2-ton hydraulic press is needed to add to production. This equipment has an initial purchase and…

A: Initial Purchase and Installation Cost 190000 Yearly Operation Cost 1000…

Q: A machine costs $180,000 and will have an eight-year life, a $20,000 salvage value, and…

A: Accounting rate of return (ARR) for an investment can be calculated as follows:-

Q: What is the average amount invested in a machine during its predicted five-year life if it costs…

Q: GIVEN: Project C requires $800,000 net initial investment for new machinery with a 8-year life and a…

A: Initial Investment on machine = $800,000 Salvage Value = $40,000 Useful Life = 8 Years Straight Line…

Q: Cardinal Company is considering a five-year project that would require a $2,975,000 investment in…

A: Annual cash inflow = $ 1,000,000 Present value of annual inflow $ 3,433,000

Q: What is the capital recovery cost for a machine costing $504,000 with a life of 9 years and a…

A: Capital recovery or equivalent annual cost =(P-S)(A/P,i,n) + S*I , Where, P = investment S-…

Q: New product tracking equipment costs $120,000 and will have a $10,000 salvage value when disposed of…

A: GIVEN, cost =$120,000 salvage value=$10,000 years=10 rate =10% annual repair cost =$5000 increase…

Q: A machine costs $600,000 and is expected to yield an after-tax net income of $23,000 each year.…

A: calculation of above requirement are as follows

Q: A company is considering purchasing equipment costing $92,000. The equipment is expected to reduce…

A: IRR is the rate at which NPV is zero

Q: The first cost of a machine is $375,000 with a 7 years life. Annual interest rate is 20% and the…

A: Depreciation means a fall in the value of a tangible asset due to wear and tear over a period of…

Q: A cooling water pumping station at a manufacturing plant in N City cost $30,000,000 to construct,…

Q: Using a compound interest of 8%, find the equivalent uniform annual cost for a proposed machine that…

A: Cash flow diagram represents cash inflows and outflows on a time series scale.

Q: $500,000 is invested in equipment having a negligible salvage value regardless of the number of…

A: Present value computes the existing value of future benefits by discounting future worth with a…

Q: How long will it take to recover an investment of $245,000 in enhanced CNC controls that include…

A: Break-Even is point where entity is neither earning profit nor incurring losses. It is point where…

Q: ₱50000 is invested in a machine, in which it has an annual total cost of ₱3000 and a salvage value…

A: Solution:- Calculation of the equivalent uniform annual cost of this cycle as follows under:-

Q: A newly hired Sanitary Engineer was made to evaluate the following conditions; An equipment package…

A: Concept. Equivalent annual cost is annual cost of owning and maintaining asset determined by…

Q: investment is ($ 350,000) with a (6) year life cycle. The operational o 0) and increased by ($…

A: We have to find present value of all and than we have annual benefits required.

Q: A conveyor system costs $110,000 to install. The salvage value of the conveyor system decreases by…

A: The EUAC and ORI is Computed by finding out the Present value and the EUAC for each of the year. The…

Q: Cardinal Company is considering a five-year project that would require a $2,975,000 investment in…

A: Payback Period & Internal Rate of Return: The payback period is the amount of time it would take…

Concept explainers

Production Budget

A budget can be defined as a financial plan designed by an undertaking for a definite period in the future that can contribute towards enhancing the financial success of the business undertaking. It is used to estimate the revenue and expenses. The budget generally takes into account both current and future income and expenses.

Question

Expert Solution

This question has been solved!

Explore an expertly crafted, step-by-step solution for a thorough understanding of key concepts.

This is a popular solution!

SEE SOLUTION Check out a sample Q&A here

Step 1

VIEW

Step 2

VIEW

Step 3

VIEW

Trending now

This is a popular solution!

Step by step

Solved in 3 steps

SEE SOLUTION Check out a sample Q&A here

Knowledge Booster

Learn more about

Need a deep-dive on the concept behind this application? Look no further. Learn more about this topic, accounting and related others by exploring similar questions and additional content below.

Similar questions

Caduceus Company is considering the purchase of a new piece of factory equipment that will cost $565,000 and will generate $135,000 per year for 5 years. Calculate the IRR for this piece of equipment. For further instructions on internal rate of return In Excel, see Appendix C.
$500,000 is invested in equipment having a salvage value equal to $500,000(0.80n) after n years of use. O&M costs equal $125,000 the first year and increase $15,000 per year. Based on a MARR of 10%, what are the optimum replacement interval and minimum EUAC?
Alternative X has a first cost of 22000 an annual operating cost of 4100 , and a salvage value of 6825 after 27 year. Alternative Y has a first cost of 23000 an annual operating cost of 4200 , and a salvage value of 16560 after 27 year. If MARR of 27% per year, approximately what is the PW of each alternative?
A project has an initial investment of $45,000. This project needs an annual spending of $6,000 to generate an annual revenue of $18,000 for six years. Moreover, the project is expected to return $12,000 as a salvage value at the EOY 6. Calculate the AW using MARR of 10%
A conveyor system costs $110,000 to install. The salvage value of the conveyor system decreases by $20,000 each year until its salvage value is $0, at which point it no longer decreases. The cost to operate and maintain the conveyor system the first year is $20,000; this cost increases by 7% per year. What is the optimal replacement interval and minimum EUAC for the conveyor system, assuming a MARR of 15% is used? Click here to access the TVM Factor Table Calculator. years ORI: EUAC*: $ Carry all interim calculations to 5 decimal places and then round your final answers to a whole number. The tolerance is ±10 for the EUAC*. eTextbook and Media Hint Assistance Used Construct an Excel® table that computes the EUAC for different values of n. This will help you to find EUAC*, from which you can deduce the optimal replacement interval.
A piece of equipment has an initial cost of $125,000. The annual 0&M costs are $31,000 and increase $1000 per year. The annual revenue is $45,000 and increase $1,500 per year. The equipment has a life span of 8 years and a salvage value of $30,000. Based on a MARR of 5%, determine the following: a. If the project is viable based on Net Present Worth. b. Determine the amount the annual revenue has to be increased to make the project viable. c. Determine the amount the salvage value has to increase to make the project viable.
A project with a life of 10 has an initial fixed asset investment of $25,620, an initial NWC investment of $2,440, and an annual OCF of −$39,040. The fixed asset is fully depreciated over the life of the project and has no salvage value. If the required return is 10 percent, what is the project's equivalent annual cost, or EAC? Show equations using excel.
A project with a life of 11 has an initial fixed asset investment of $42,000, an initial NWC investment of $4,000, and an annual OCF of -$64,000. The fixed asset is fully depreciated over the life of the project and has no salvage value.If the required return is 19 percent, what is the project's equivalent annual cost, or EAC?
A temporary warehouse can be built for $10 million and its salvage value when decommissioned is zero. The annual revenue from the sale of storage space minus maintenance and operating costs is estimated at $3 million. If the TMAR is 13% per year and the warehouse is used for 8 years, does the investment matter? What is the minimum useful life for the construction to be interesting?
An injection molding system has a first cost of $200,000 and an annual operating cost of $69,000 in years 1 and 2, increasing by $5,500 per year thereafter. The salvage value of the system is 25% of the first cost regardless of when the system is retired within its maximum useful life of 5 years. Using a MARR of 11% per year, determine the ESL and the respective AW value of the system. The ESL is ]year(s) and AW value of the system is $|
a potential project is currently under review an investment of $87000 would be necessary for equipment. the annual revenues and expenses are expected to be $40000 and 19000 each year respectively over the 6-year project period. the salvage value of the equipment at the end of the project period is projected to be $17,000. Assume a MARR of 9%. find the B-C(to the nearest cent).
A temporary warehouse can be built for $10 million and its salvage value when decommissioned is zero. The annual revenue from the sale of storage space minus maintenance and operating costs is estimated at $3 million. If the attractive minimum rate of return is 13% per year and the warehouse is used for 8 years, does the investment matter? What is the minimum useful life for the construction to be interesting?