Contemporary Engineering Economics (6th Edition)
Contemporary Engineering Economics (6th Edition)
6th Edition
ISBN: 9780134105598
Author: Chan S. Park
Publisher: PEARSON
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Chapter 5, Problem 10P
To determine

Calculate the present worth.

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A factory manager is considering the purchase of one of the following two production equipment. Cash flow estimates for equipment A are in year-zero dollars while those of equipment B are in actual dollars. Equipment A (year-zero $) Equipment B (actual $) Initial investment $9,400 $11,400 $4,000 $0 Net annual revenue $3,000 Market value at end of useful life $0 Useful life, years 12 12 The manager uses a market interest rate of 12% per year. If inflation rate is expected to average 3.70% per year over the next several years, determine the PW of each equipment. 1. The PW of Equipment A is O A. $9,183 O B. $13,208 O C. $12,400 O D. $19,252 2. The PW of Equipment B is $15, O B. $18,744 O C. $13,377 O D. $26,802
Your company is considering the purchase of a 30-tonne hoist. The first cost is expected to be $230,000. Net savings will be $38,000 per year over a 12-year life and will be salvaged for $32,715. If the company's after-tax MARR is 8% and it is taxed at 45%, what is the future worth (FW) of this project? Note: You will have to calculate the CCA depreciation rate from the information provided.
Item A is currently in use at a plant. The original cost of the piece of machinery was $2,000. Its maintenance cost is $500 this year, increasing each year by $30. Items A can be replaced by Item B which has a current cost of $3,500. Item B has no annual maintenance costs, but it is anticipated that the item purchase cost increases by $50 per year. Disregarding income taxes effects (such as depreciation), what is the predicted optimum time (after year 'X') to schedule a replacement of Item A with Item B. Use 8% as the 'interest rate', which really is the value of money to the company. a. 5 years b. 6 years c. 7 years d. 8 years
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