The local police department is considering two types of sidearms for its officers. The Glock 40 costs $400 apiece and has a life of 5 years. The other option is a Sauer 45 that costs $800 and has a 10-year life. The Sauer pistol has a residual value of $200 at the end of its 10-year service life. Assume repeatability and compute the internal rate of return on the incremental cash flow of the two pistols. If the department uses a MARR of 5% per year, is the Sauer 45 the better choice?
The local police department is considering two types of sidearms for its officers. The Glock 40 costs $400 apiece and has a life of 5 years. The other option is a Sauer 45 that costs $800 and has a 10-year life. The Sauer pistol has a residual value of $200 at the end of its 10-year service life. Assume repeatability and compute the internal rate of return on the incremental cash flow of the two pistols. If the department uses a MARR of 5% per year, is the Sauer 45 the better choice?
Essentials Of Investments
11th Edition
ISBN:9781260013924
Author:Bodie, Zvi, Kane, Alex, MARCUS, Alan J.
Publisher:Bodie, Zvi, Kane, Alex, MARCUS, Alan J.
Chapter1: Investments: Background And Issues
Section: Chapter Questions
Problem 1PS
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The local police department is considering two types of sidearms for its officers.
The Glock 40 costs $400 apiece and has a life of 5 years. The other option is a Sauer
45 that costs $800 and has a 10-year life. The Sauer pistol has a residual value of
$200 at the end of its 10-year service life. Assume repeatability and compute the
department uses a MARR of 5% per year, is the Sauer 45 the better choice?
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Assessment Task 6 (Sullivan, Wicks and Koelling, 2015)
1. Useful lives are unequal among the alternatives
The local police department is considering two types of sidearms for its officers.
The Glock 40 costs $400 apiece and has a life of 5 years. The other option is a Sauer
45 that costs $800 and has a 10-year life. The Sauer pistol has a residual value of
$200 at the end of its 10-year service life. Assume repeatability and compute the
internal rate of return on the incremental cash flow of the two pistols. If the
department uses a MARR of 5% per year, is the Sauer 45 the better choice?
2. Personal Finances
A certain U.S. government savings bond can be purchased for $7,500. This bond
will be worth $10,000 when it matures in 5 years. As an alternative, a 60-month
certificate of deposit (CD) can be purchased for $7,500 from a local bank, and the CD
yields 6.25% per year. Which is the better investment if your personal MARR is 5%
per year?
3. Useful lives are equal to the study period
At the Motorola plant in Mesa, Arizona, it is desired to determine whether one-
inch-thick insulation or two-inch-thick insulation should be used to reduce heat loss
from a long section of steam pipe. The heat loss from this pipe without any insulation
would cost $2.00 per linear foot per year. The one-inch insulation will eliminate 88%
of the heat loss and will cost $0.60 per foot. Two-inch insulation will eliminate 92% of
the heat loss and will cost $1.10 per foot. The steam pipe is 1,000 feet in length and
will last for10 years. MARR = 6% per year. Which insulation thickness should be
recommended?
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