Engineering Economy (17th Edition)
17th Edition
ISBN: 9780134870069
Author: William G. Sullivan, Elin M. Wicks, C. Patrick Koelling
Publisher: PEARSON
expand_more
expand_more
format_list_bulleted
Question
Chapter 7, Problem 20P
To determine
Calculate the after tax cash flow.
Expert Solution & Answer
Trending nowThis is a popular solution!
Students have asked these similar questions
The Ingersoll Engineering Company is
considering the purchase of a gas flow
meter. Its purchase price is $9,500 and
another $500 will be spent shipping and
installing this device. Use of the meter is
expected to result in a $9,000 annual
increase in revenue, and operating
expenses are estimated to be $5,000 per
year. The meter will be used for five
years, and then it will be sold for an
estimated market value of $2,500. The
meter's MACRS property class is five
years.
Determine the after-tax IRR on this
investment if the effective income tax
rate (t) is 40%. If the after-tax MARR is
10%, should this gas flow meter be
purchased, installed and utilized by the
company? What is the payback period
based on the after-tax cash flows? (7.10)
The Riteway Ad Agency provides cars for its sales staff. Its present fleet of cars is three years old and will be sold very shortly. To
provide a replacement fleet, the company is considering two alternatives:
Purchase alternative: The company can purchase the cars and sell them in three years.
Ten cars would be purchased for $15,000 each. If this
alternative is chosen, the entire fleet will incur the
following costs:
Annual cost of servicing, taxes, and licensing
$ 3,100
Repairs, first year
$ 1,000
Repairs, second year
$ 3,500
$ 5,500
Repairs, third year
At the end of three years, the fleet could be sold for one-half of the original purchase price.
Lease alternative:
The company can lease the cars under a three-year lease
contract costing $50,000 per year (the first payment due at the
end of Year 1). As part of this lease agreement, the owner
would provide all servicing and repairs, license the cars, and
pay the taxes. Riteway would make a $10,500 security deposit at
the beginning of…
A firm owns a pressure vessel that it is contemplating replacing.
The old pressure vessel has annual operating and maintenance
expenses of $60,000 per year and it can kept for five more years,
at which time it will have zero market value. It is believed that $
20,000 could be obtained for the old pressure vessel if it were
sold now. A new pressure vessel can be purchased for $
110,000. The pressure vessel will have an market value of $
50,000 in five years and will have annual operating and
maintenance expenses of $30, 000 per year. Using a before - tax
MARR of 20% per year, determine whether or not the old
pressure vessel should be replaced.
Chapter 7 Solutions
Engineering Economy (17th Edition)
Ch. 7 - How are depreciation deductions different from...Ch. 7 - Prob. 2PCh. 7 - Explain the difference between real and personal...Ch. 7 - Prob. 4PCh. 7 - Prob. 5PCh. 7 - Prob. 6PCh. 7 - Prob. 7PCh. 7 - Prob. 8PCh. 7 - Prob. 9PCh. 7 - Prob. 10P
Ch. 7 - Prob. 11PCh. 7 - Prob. 12PCh. 7 - Prob. 13PCh. 7 - Prob. 14PCh. 7 - A manufacturer of aerospace products purchased...Ch. 7 - Prob. 16PCh. 7 - Prob. 17PCh. 7 - Prob. 18PCh. 7 - Prob. 19PCh. 7 - Prob. 20PCh. 7 - Prob. 21PCh. 7 - Prob. 22PCh. 7 - Prob. 23PCh. 7 - Prob. 24PCh. 7 - Prob. 25PCh. 7 - Prob. 26PCh. 7 - Prob. 27PCh. 7 - Prob. 28PCh. 7 - Prob. 29PCh. 7 - Prob. 30PCh. 7 - Prob. 31PCh. 7 - Prob. 32PCh. 7 - Prob. 33PCh. 7 - Refer to Problem 6-79. The alternatives all have a...Ch. 7 - Prob. 35PCh. 7 - Prob. 36PCh. 7 - Prob. 37PCh. 7 - Prob. 38PCh. 7 - Prob. 39PCh. 7 - Prob. 40PCh. 7 - Prob. 41PCh. 7 - Prob. 42PCh. 7 - Prob. 43PCh. 7 - Prob. 44PCh. 7 - Prob. 45PCh. 7 - Prob. 46PCh. 7 - AMT, Inc., is considering the purchase of a...Ch. 7 - Prob. 48PCh. 7 - Prob. 49PCh. 7 - Prob. 50PCh. 7 - Prob. 51PCh. 7 - Prob. 52PCh. 7 - Determine the after-tax yield (i.e., IRR on the...Ch. 7 - A 529-state-approved Individual Retirement Account...Ch. 7 - Prob. 55PCh. 7 - Prob. 56PCh. 7 - Prob. 57SECh. 7 - Prob. 58SECh. 7 - Prob. 59SECh. 7 - Refer to the chapter opener and Example 7-14. As...Ch. 7 - Prob. 61FECh. 7 - The Parkview Hospital is considering the purchase...Ch. 7 - Prob. 63FECh. 7 - Prob. 64FECh. 7 - Prob. 65FECh. 7 - Prob. 66FECh. 7 - Prob. 67FECh. 7 - Prob. 68FECh. 7 - Prob. 69FECh. 7 - Prob. 70FECh. 7 - Prob. 71FECh. 7 - Prob. 72FECh. 7 - Prob. 73FECh. 7 - Prob. 74FECh. 7 - Prob. 75FECh. 7 - If the federal income tax rate is 35% and the...Ch. 7 - Prob. 77FECh. 7 - Acme Manufacturing makes their preliminary...Ch. 7 - Prob. 79FECh. 7 - Prob. 80FECh. 7 - Prob. 81FECh. 7 - Prob. 82FECh. 7 - Prob. 83FECh. 7 - Prob. 84FECh. 7 - Two insulation thickness alternatives have been...
Knowledge Booster
Similar questions
- Machine X costs $248,751 with annual operating and maintenance costs of $9,980. Machine Y costs $264,500 with annual operating and maintenance costs of $5120. Both machines are Class 43 (CCA=30%). The company needs the machines for 11 years, after which machine X can be sold for $12,257 and machine Y can be sold for $13,033. The company’s MARR is 10%, and its tax rate is 27%. Do an after-tax analysis to determine which machine should be purchased.arrow_forwardMaintenance money for an athletic complex has been sought. Mr. Kendall, the Athletic Director, would like to solicit a donation to cover all future expected maintenance costs for the building. These maintenance costs are expected to be $1.2 million each year for the first five years, $1.6 million each year for years 6 through 10, and $1.9 million each year after that. (The building has an indefinite service life.) If the money is placed in an account that will pay 7% interest compounded annually, how large should the gift be? Click the icon to view the interest factors for discrete compounding when i = 7% per year. The gift should be $31.35 million. (Round to two decimal places. More Info N 1 2 3 4 5 67899 10 Single Payment Compound Amount Factor (F/P, I, N) 1.0700 1.1449 1.2250 1.3108 1.4026 1.5007 1.6058 1.7182 1.8385 1.9672 Present Worth Factor (P/F, I, N) 0.9346 0.8734 0.8163 0.7629 0.7130 0.6663 0.6227 0.5820 0.5439 0.5083 Print Compound Amount Factor (F/A, I, N) 1.0000 2.0700…arrow_forwardAs a result of improvements in product engineering, United Automation is able to sell one of its two milling machines. Both machines perform the same function but differ in age. The newer machine could be sold today for $69,500. Its operating costs are $22,600 a year, but at the end of five years, the machine will require a $18,700 overhaul (which is tax deductible). Thereafter, operating costs will be $31,300 until the machine is finally sold in year 10 for $6,950. The older machine could be sold today for $26,300. If it is kept, it will need an immediate $26,500 (tax-deductible) overhaul. Thereafter, operating costs will be $34,900 a year until the machine is finally sold in year 5 for $6,950. Both machines are fully depreciated for tax purposes. The company pays tax at 21%. Cash flows have been forecasted in real terms. The real cost of capital is 13%. a. Calculate the equivalent annual costs for selling the new machine and for selling the old machine. (Do not round intermediate…arrow_forward
- A new machine will cost $200,000. Its maximum useful life is 8 years. The expected market value (MV) of the machine at the end of year 1 is $100,000, and it is expected to decline by $15,000 each year afterwards. The annual operating cost (AOC) is projected to be $75,000 during the first year of operation, and it is expected to rise by 15% every year afterwards. Assuming 11% minimum attractive rate of return, calculate the economic service life of the machine. Your calculations need to include a table with the following columns: Year, MV, AOC, Capital Recovery, Annual Worth (AW) of AOC, and Total AW. Illustrate your analysis with a properly labeled chart, featuring the number of years of service on the horizontal axis, and capital recovery, annual worth of the AOC, and total annual worth on the vertical axis (click to format the vertical axis and check the box “Values in reverse order” so that the axis displays rising cost as movement up). Please provide a written statement clearly…arrow_forwardBarbour Electric is considering the introduction of a new product. This product can be produced in one of several ways: (a) using the present assembly line at a cost of $20 per unit, (b) using the current assembly line after it has been overhauled (at a cost of $5,000) with a cost of $18 per unit; and (c) on an entirely new assembly line (costing $30,000) designed especially for the new product with a per unit cost of $15. Barbour is worried, however, about the impact of competition. If no competition occurs, they expect to sell 10,000 units the first year. With competition, the number of units sold is expected to drop to 6,000. At the moment, their best estimate is that there is a 40% chance of competition. They have decided to make their decision based on the first-year sales. (a) Develop a decision table showing the payoffs. (b) What decision should they make? Hint: develop an EOL table and make a decision based on this table.arrow_forwardMaintenance money for an athletic complex has been sought. Mr. Kendall, the Athletic Director, would like to solicit a donation to cover all future expected maintenance costs for the building. These maintenance costs are expected to be $1.4 million each year for the first five years, $1.7 million each year for years 6 through 10, and $ million each year after that. (The building has an indefinite service life.) If the money is placed in an account that will pay 5% interest compounded annually, how large should the gift be? The gift should be $_____million. (Round to two decimal places.)arrow_forward
- Two options of feed-water storage installation are being considered to serve over 20 years of useful life: Option 1: Build a 20,000-gallon tank on tower. The cost of installing the tank and tower is estimated to be $170,000. The annual operating and maintenance cost after tax adjustment is estimated to be $2,000. The salvage value is estimated to be negligible. Option 2: Place a 20,000-gallon tank of equal capacity on a hill near the refinery. The cost of installing the tank on the hill, including the extra length of service lines, is estimated to be $120,000 with negligible salvage value. The annual operating and maintenance cost of the water tank is estimated to be $1,500 after tax adjustment. Because of the location, an additional investment of 13,000 in pumping equipment is required. The pumping equipment is expected to have a service life of 10 years with a salvage value of $2,000 at the end of that time. The annual operating and maintenance cost (including any incometax effects)…arrow_forwardA contractor has purchased a wheel loader for $115,000 and plans to use it for 2,000 hours per day. The cost of one set of tires is $25,000. At this usage rate, the contractor anticipates disposing of the loader after using it for 10 years and realizing a salvage value of $35,000. The flywheel horsepower rating of the loader's diesel engine is 105 horsepower. The interest rate is 10%. The loader operator will earn $34.00 per hour including fringe benefits, and diesel fuel costs $1.20 per gallon. How much is the contractor's hourly ownership cost for the loader if using time value money analysis?arrow_forwardA machine costs $19,310 and is expected to have a scrap value of $2,991 whenever it is retired. Operating and Maintenance costs are $1,047 for the first year and expected to increase by $1,751 thereafter. If the MARR is 12%, determine the minimum equivalent uniform annual cost associated with the optimal economic life of the machine. The service life of this machine is 5 years. Note: round your answer to two decimal places, and do not include spaces, currency signs,arrow_forward
- 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. $26,802arrow_forwardA municipal council purchased a water supply pump at a cost of RM 200,000 two years ago to be useful for eight years. This pump can be replaced with an improved version for preference and satisfaction of public water supply in municipal area. The present market value, annual maintenance cost and ultimate salvage value of the two pumps are given in Table 4. The expected economic life of the improved version pump is six years. The bank interest rate is 12%, compounded annually. Estimate the annual equivalent cost of the two water supply pumps .Table 4: Comparison of two water supply pumps Option Present market Annual maintenance Ultimate salvage value value cost Present water suppl;y 25,000 120,000 25,000 um Improved version 14,000 150,000 20,000arrow_forwardA manufacturing company is considering a capacity expansion investment at the cost of $32,850 with no salvage value. The expansion would enable the company to produce up to 30,000 parts per year and the useful life of the additional capacity is seven years. Each part would generate $2.54 net profit and annual operating and maintenance costs are estimated at $8,989 per year. The market demand for the parts is unlimited. All parts produced will be sold. The MARR of the firm is 10%. What is the minimum annual production rate to make this investment justified? Enter your answer as follows: 12345 Round your answer. Do not use a decimal point ("."), or a comma (",").arrow_forward
arrow_back_ios
SEE MORE QUESTIONS
arrow_forward_ios
Recommended textbooks for you
Managerial Economics: Applications, Strategies an...EconomicsISBN:9781305506381Author:James R. McGuigan, R. Charles Moyer, Frederick H.deB. HarrisPublisher:Cengage Learning
Managerial Economics: Applications, Strategies an...
Economics
ISBN:9781305506381
Author:James R. McGuigan, R. Charles Moyer, Frederick H.deB. Harris
Publisher:Cengage Learning