A telecommunications firm is considering a product expansion of a popular cell phone. Two alternatives for the cell phone expansion are summarized below. The company uses a MARR of 8% per year for decisions of this type, and repeatability may be assumed. Which alternative should be recommended and why?
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![Question 1:
A telecommunications firm is considering a product expansion of a popular cell phone. Two
alternatives for the cell phone expansion are summarized below. The company uses a MARR of 8%
per year for decisions of this type, and repeatability may be assumed. Which alternative should be
recommended and why?
Capital investment
Annual revenue
Annual expenses
Salvage value
Useful life
Expansion A
$1,000,000
$760,000
$500,000
$100,000
6 years
Expansion B
$1,250,000
$580,000
$360,000
$150,000
8 years](/v2/_next/image?url=https%3A%2F%2Fcontent.bartleby.com%2Fqna-images%2Fquestion%2F866e77c7-157f-403d-bb4d-acfb7f9fda35%2F0b60c218-b30f-4f47-92ea-4012d3099045%2Fhoifxc8_processed.jpeg&w=3840&q=75)
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- The city of St. John's is intalling a new swimming pool in the east end recreation centre. One design being considered is a reinforced concrete pool that will cost $5,400,000 to install. Thereafter, the inner surface of the pool will need to be refinished and painted every 5 years at a cost of $440,000 per refinishing. Assuming that the pool will have essentially an infinite life, what is the present worth of the costs associated with the pool design? The city uses a MARR of 10%. If the installation costs, refinishing costs, and MARR are subject to 5% or 10% increases or decreases, how is the present worth affected? (NOTE: Text answers are case sensitive and every field in this question is worth equal value) All calculations are performed using 4 significant figures. (a) Complete the table below: Sensitivity Analysis Calculated Values Parameter Construction Costs Refinishing Costs MARR [%] -10% -5% Base Case 5,400,000 440,000 10 +5% +10%True/False AVC can fall even when MC is risingI want you to provide me the Cash Flow diagram of the problem. Only cash flow diagram, the solution is already there. Thanks in advance! The annual estimated cash flow is $140,000. The salvage value will be 12% of the initial price after 5 years. The discount rate (r) is 18% Let us assume the initial price of the doughnut machine be X. PV of cash inflows=PV of cash outflows$140,000×PVAF4,18%+.12X×PVF5,18%=X$140,000×2.69006180465+.12X×0.43710921621=X$376,608.652651=X-0.05245310594$376,608.652651=0.94754689406XX=$397,456.479475 The maximum purchase price of the doughnut machine is $397,456.48.
- Assume you started a sideline business in commercial photography last year using your then-owned equipment. Due to excellent success, you plan to purchase new equipment and upgrade your studio facility. First cost of equipment, $ Annual expenses, $ per year Annual revenue, $ per year |-160,000 |-45.000 75,000 Determine the no-return payback period. The no-return payback period is | years.1. The Present Worth Method A project your firm is considering for implementation has these estimated costs and revenues: an investment cost of $50,000; maintenance costs that start at $5,000 at the end of year (EOY) 1 and increase by $1,000 for each of the next 4 years, and then remain constant for the following 5 years; savings of $20,000 per year (EOY 1–10); and finally a resale value of $35,000 at the EOY 10. If the project has a 10-year life and the firm’s MARR is 10% per year, what is the present worth of the project? Is it a sound investment opportunity?An engineering firm has identified five ways to cut costs in its main office. Only one of the options can be implemented, however, since each involves significant training time for staff engineers. Data are provided in the table. Each option has a lifetime of seven years, and the firm sets a MARR at 15%. Option A B C D E Capital cost ($ million) 2.713 0.375 1.650 0.088 0.950 Annual cost ($ million/yr 0.093 0.275 0.132 0.147 0.228 Annual benefit ($ million/yr) 0.890 0.288 0.841 0.312 0.505 a) Solve by present worth analysis. b) Solve by annual cash flow analysis. c) Solve by incremental benefit-cost ratio analysis. d) Solve by an incremental rate of return analysis using the full detailed procedure
- A Clinical Laboratory plans to build a waste water management installation (IPAL) independently. For waste distribution needs, two types of specifications are considered which must be selected according to the conditions: Initial cost of the pipe Technical lifetime of the pipe Initial cost of equipment Technical lifetime of the equipment Energy costs for pumps per year Increase in energy costs for pumps every year Pipe X $ 1.200 million 60 years $ 150 million 20 years $ 30 million $ 0,6 million Pipe Y $800 million 30 years $ 200 million 20 years $ 40 million $ 0,8 million The cost of rejuvenation over 60 years is the same as the initial cost. The analysis period is 60 years, then compare Equivalent Uniform Annual Cost (X) with Equivalent Uniform Annual Cost (Y) assuming an analysis interest rate of 10% and a residual value for pipes and equipment is zero.(a) Q1: Examine the data in the Table below and determine the lifetimecosts of this hybrid vehicle. b) As logistics manager, you’re considering the following alternativevehicle for your fleet. What are its lifetime costs in comparison withthe hybrid vehicle? c) Calculate the indifference point between the two vehicle designsand the expected age of the vehicles at this point. d) Which car should you choose if you intend to own it for longer thanthis time?An electronics firm is planning to manufacture a new handheld gaming device for the preteen market. The data have been estimated for the product. Assuming a negligible market (salvage) value for the equipment at the end of five years, determine the breakeven annual sales volume for this product.
- You have been asked to perform an economic evaluation of two projects and recommend one of them for implementation. The project parameters are as follows: Project A Project B Discount Rate 4.0% 4.0% Your analysis concludes that: Project Cost $1,000,000 $750,000 Project Life (yrs) 10 15 Elec. Savings Elec. Cost (kWh/yr) ($/kWh) 800,000 600,000 O Project A is preferable, but Project B also has attractive performance. O Project B is preferable, but Project A also has attractive performance. O Project B is preferable and Project A results in a net loss. O Project A is preferable and Project B results in a net loss. $0.12 $0.12 Annual Cost Escalation Rate 1.5% 1.5%The Gigadigit Manufacturing Inc. is considering to produce a new product. The following data have been provided to management: Sales price S17.50/unit Equipment cost S250,000 Incremental overhead cost |550,000/year Sales and marketing cost $150,000/year Operating and maintenance cost $25/operating hour Production time/1,000 units 100 hours Packaging and shipping cost s0.50/unit Planning horizon Minimum attractive rate of return 15% 5 years The managers would like to know the viability of this product and how it would roll out in sales. (a) To give them basis and insight what is the break-even value of units that must be sold annually to keep the product viable? (b) If the target revenue is from 30,000 units sold, what is the expected profit? (C) If the profit drops by 13% due to equipment replacement, how much must have been the cost of the alternative equipment? (d) Provide graph for (a)A project is being planned that has an initial investment at time 0, annual revenuesand expenses, and a salvage value at the end of the project lifespan (20 years). The financialvalues are summarized below:Initial investment amount at time 0 $150,000Estimated annual revenue $34,500 per yearEstimated annual expenses $8,700 per yearEstimated salvage value at end of lifespan $10,000Minimum attractive rate of return (MARR) 15%a. Calculate the capital recovery amount CR(i%).b. Using the annual worth (AW) method, determine whether purchasing the equipmentis economically justified.c. Repeat part (a) using the internal rate of return (IRR) method based on annual worth(AW).d. Using the present worth (PW) method, determine the break-even time period afterwhich purchase of the equipment generates a profit. (Find N when PW = 0) year period.
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