8.(new question) An engineer proposes to spend $95,000 on a capital project to upgrade a package delivery system. The project is expected to have labor savings of $20,000 a year plus reduce scrap costs by $5000 a year. There is expected to be no salvage value the end of the equipment life, which is anticipated to be 7 years. MARR is 12%. This question is in five parts. The engineer next performs a sensitivity analysis for a best case and worst case scenario: Best Case Worst Case Initial Cost $95,000 $110,000 Labor Savings $25,000 $15,000 Scrap Cost Reduction $6,000 $4,000 Part 5: What is the Rate of Return (ROR) in the worst case scenario? (your answer should be a positive or negative number and do not use % signs, commas or $ signs; round to the nearest whole number %)

8.(new question) An engineer proposes to spend $95,000 on a capital project to upgrade a package delivery system. The project is expected to have labor savings of $20,000 a year plus reduce scrap costs by $5000 a year. There is expected to be no salvage value the end of the equipment life, which is anticipated to be 7 years. MARR is 12%. This question is in five parts. The engineer next performs a sensitivity analysis for a best case and worst case scenario: Best Case Worst Case Initial Cost $95,000 $110,000 Labor Savings $25,000 $15,000 Scrap Cost Reduction $6,000 $4,000 Part 5: What is the Rate of Return (ROR) in the worst case scenario? (your answer should be a positive or negative number and do not use % signs, commas or $ signs; round to the nearest whole number %)

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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An engineer proposes to spend $95,000 on a capital project to upgrade a package delivery system. The project is expected to have labor savings of $20,000 a year plus reduce scrap costs by $5000 a year. There is expected to be no salvage value at the end of the equipment life, which is anticipated to be 7 years. MARR is 12%. This question is in five parts. The engineer next performs a sensitivity analysis for a best case and worst case scenario: Best Case Worst Case Initial Cost $95,000 $110,000 Labor Savings $25,000 $15,000 Scrap Cost Reduction $6,000 $4,00O Part 4: What is the present worth (PW) in the worst case scenario? (your answer should be a positive or negative number and do not use commas or $ signs)
1), Acme Molding is examining five alternatives for a piece of material handling equipment. Each has an expected life of 8 years with no salvage value, and Acme's MARR is 16%. Using an incremental analysis, which material handling alternative should be chosen? The table below includes initial investment, net annual income, and IRR for each alternative. Alternative A B C E Capital investment -$10,000 -$10,600 -$14,000 -$16,300 -$19,000 Net annual income $2,500 $2,600 $2,900 $3,500 $4,800 IRR 18.62% 18.01% 12.83% 13.88% 18.97%
An elective project is currently under review. It requires an initial investment of $116,000 for equipment. The profit is expected to be $28,000 each year, over the 6-year project period. The salvage value of the equipment at the end of the project period is projected to be $22,000. Assume a MARR of 10%. Find an IRR for this project.
Assume that United Technologies is evaluating a proposal to change the company's manual design system to a computer-aided design (CAD) system. The proposed system is expected to save 10,000 design hours per year; an operating cost savings of $50 per hour. The annual cash expenditures of operating the CAD system are estimated to be $250,000. The CAD system requires an initial investment of $500,000. The estimated life of this system is five years with no salvage value. The tax rate is 40 percent. United Technologies has a cost of capital of 20 percent.Assume that management intends to use double-declining balance depreciation with a switch to straight-line depreciation (applied to any undepreciated balance) starting in Year 4.Determine the project's net present value
an engineer proposes to spend $95,000 on a capital project to upgrade a package delivery system. The project is expected to have labor savings of $20,000 a year plus reduce scrap costs by $5,000 a year. There is expected to be no salvage value at the end of the equipment life, which is anticipated to be 7 years. MARR is 12% What is the Present worth of the worst case scenario? best case worst case Initial Cost $95,000 $110,000 Labor Savings $25,000 $15,000 Scrap Cost Reduction $6,000 $4,000
An engineer has designed 2 alternative systems to cater for customer's plant operation. System 1 will need initial investment of $150,000 and will have an annual operating cost of $20,000 with salvage price of $5,000 after 4 years. System 2 will need an investment of $180,000 and the annual operating cost will be $15,000. System can be salvaged for $8,000 after 6 years. At an interest rate of 10% per year, which system should be proposed by the engineer on the basis of a present worth analysis? Use equations to solve this problem.
You have been asked to perform a sensitivity analysis on a company’s plan to modernize its facilities to determine the impact of possible errors in estimating the net annual savings. The initial investment in the modernization is $30,000. The expected net annual savings are $13,000. The salvage value is $7,000 after a planning horizon of 7 years. MARR is 12% per year. Solve, a. Determine if the modernization is economically attractive based on the initial estimates and an annual worth (AW) analysis. b. Determine the AW if the net annual savings change by the following percentages from the initial estimate: −80%, −60%, −40%, −20%, +20%, +40%. c. Determine the percentage change in net annual savings that causes a reversal in the decision regarding the attractiveness of the project.
You are attempting to reconstruct a project analysis of a co-worker who was fired for flunking FI 3300. You have found the following information: The IRR is 14%. The project life is 6 years. The initial cost is $16,000. ● In years 1, 2, 3 and 4 you will receive cash inflows of $3,000. You know the cash flows in years 5 and 6 are equivalent, but the amount is not on file. The appropriate discount rate is 10%. What is the NPV of the project?
You must evaluate the purchase of a proposed spectrometer for the R&D department. The purchase price of the spectrometer including modifications is $100,000, and the equipment will be fully depreciated at the time of purchase. The equipment would be sold after 3 years for $28,000. The equipment would require a $12,000 increase in net operating working capital (spare parts inventory). The project would have no effect on revenues, but it should save the firm $22,000 per year in before-tax labor costs. The firm's marginal federal-plus-state tax rate is 25%. What is the initial investment outlay for the spectrometer after bonus depreciation is considered, that is, what is the Year 0 project cash flow? Enter your answer as a positive value. Round your answer to the nearest dollar. What are the project's annual cash flows in Years 1, 2, and 3? Do not round intermediate calculations. Round your answers to the nearest dollar.
You must evaluate the purchase of a proposed spectrometer for the R&D department. The purchase price of the spectrometer including modifications is $290,000, and the equipment will be fully depreciated at the time of purchase. The equipment would be sold after 3 years for $80,000. The equipment would require an $11,000 increase in net operating working capital (spare parts inventory). The project would have no effect on revenues, but it should save the firm $56,000 per year in before-tax labor costs. The firm's marginal federal-plus-state tax rate is 25%. What is the initial investment outlay for the spectrometer, that is, what is the Year 0 project cash flow? Enter your answer as a positive value. Round your answer to the nearest dollar.$ What are the project's annual cash flows in Years 1, 2, and 3? Do not round intermediate calculations. Round your answers to the nearest dollar.Year 1: $ Year 2: $ Year 3: $
You must evaluate the purchase of a proposed spectrometer for the R&D department. The purchase price of the spectrometer including modifications is $60,000, and the equipment will be fully depreciated at the time of purchase. The equipment would be sold after 3 years for $25,000. The equipment would require a $6,000 increase in net operating working capital (spare parts inventory). The project would have no effect on revenues, but it should save the firm $38,000 per year in before-tax labor costs. The firm's marginal federal-plus-state tax rate is 25%. What is the initial investment outlay for the spectrometer after bonus depreciation is considered, that is, what is the Year 0 project cash flow? Enter your answer as a positive value. Round your answer to the nearest dollar.$ What are the project's annual cash flows in Years 1, 2, and 3? Do not round intermediate calculations. Round your answers to the nearest dollar.Year 1: $ Year 2: $ Year 3: $ If the WACC is…
An engineering firm is conducting a feasibility analysis for a client to determinewhether to move forward with a project. The project has a 10-year lifespan and requires aninitial investment of $750,000 at time 0. The project is expected to generate $120,000 peryear in revenue starting at the end of year 3 and continuing through the 10-year lifespan.Annual expenses to operate the project will be $8,500 per year starting at the end of year 1and continuing through the 10-year lifespan. The project will require a single payment of$18,000 at the end of year 6 to cover maintenance expenses. The salvage value at the end of10 years is estimated to be $31,000. The client is willing to accept any project that will earn aMARR of at least 12% per year.Determine whether the project is acceptable using the internal rate of return (IRR) method.Use present worth (PW) to calculate IRR.

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