Q5 (ILOS measured: For Independent IRR Projects answer the following question The High Society Baked Bean Co. is considering a new canner. The canner costs $120 000 and will have a scrap value of $5000 after its 10-year life. Given the expected increases in sales, the total savings due to the new canner, compared with continuing with the current operation, will be $15 000 the first year, increasing by $5000 each year thereafter. Total extra costs due to the more complex equipment will be $10 000 per year. The MARR for High Society is 12 percent. Should it invest in the new canner? Note: There are several ways a student can do this. In this problem, equating annual outflows and receipts appears to be the easiest approach, because most of the cash flows are already stated every year. 5000(A/F,i,10)+15 000 + 5000(A/G,i,10) -120 000(A/P,i,10) 10 000 = 0 The figure below shows high society baked bean canner to help the student to achieve the best -$120 000 Gradient of $5000 per year 3 4 5 6 7 8 9 10 $60 000 $15.000 $10 000

ENGR.ECONOMIC ANALYSIS
14th Edition
ISBN:9780190931919
Author:NEWNAN
Publisher:NEWNAN
Chapter1: Making Economics Decisions
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5
Q5 (ILOs measured: B1, B2, C2, C3)
For Independent IRR Projects answer the following question
The High Society Baked Bean Co. is considering a new canner. The canner costs $120 000 and
will have a scrap value of $5000 after its 10-year life. Given the expected increases in sales, the
total savings due to the new canner, compared with continuing with the current operation, will be
$15 000 the first year, increasing by $5000 each year thereafter. Total extra costs due to the more
complex equipment will be $10 000 per year. The MARR for High Society is 12 percent. Should
it invest in the new canner?
Note: There are several ways a student can do this. In this problem, equating annual outflows
and receipts appears to be the easiest approach, because most of the cash flows are already
stated every year.
5000(A/F,i,10) + 15 000 + 5000(A/G,i*,10)
-120 000(A/P,i,10) 10 000 = 0
The figure below shows high society baked bean canner to help the student to achieve the best
0
-$120 000
Gradient of $5000 per year
15
6
8
9
10
$60 000
$15.000
$10 000
Transcribed Image Text:Q5 (ILOs measured: B1, B2, C2, C3) For Independent IRR Projects answer the following question The High Society Baked Bean Co. is considering a new canner. The canner costs $120 000 and will have a scrap value of $5000 after its 10-year life. Given the expected increases in sales, the total savings due to the new canner, compared with continuing with the current operation, will be $15 000 the first year, increasing by $5000 each year thereafter. Total extra costs due to the more complex equipment will be $10 000 per year. The MARR for High Society is 12 percent. Should it invest in the new canner? Note: There are several ways a student can do this. In this problem, equating annual outflows and receipts appears to be the easiest approach, because most of the cash flows are already stated every year. 5000(A/F,i,10) + 15 000 + 5000(A/G,i*,10) -120 000(A/P,i,10) 10 000 = 0 The figure below shows high society baked bean canner to help the student to achieve the best 0 -$120 000 Gradient of $5000 per year 15 6 8 9 10 $60 000 $15.000 $10 000
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