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- Beaver, a city in the United States, is attempting to attract a professional soccer team. Beaver is planning to build a new stadium that will cost $260 million. The annual upkeep is expected to amount to $860,000. The turf will have to be replaced every 15 years at a cost of $900,000. Painting every 6 years will cost $76,000. If the city expects to maintain the facility indefinitely, what is the estimated capitalized cost at i= 11% per year?To promote sports in Qatar, the National Olympic committee is planning to construct a new handball stadium, with the initial cost of $10 million and an upgrade cost of $478 thousand in year 3. The annual operating costs are expected to be $125 thousand. It is expected to bring an overall benefit to the public worth $1.2 million each year. However, it is also anticipated that disbenefits of $191 thousand each year is due to utilization of extra resources. If the project life is given to be 9 years for analysis purpose, determine the B/C ratio using the conventional benefit-to-cost ratio method. Use an interest rate of 12% per year.Seattle is attempting to revive its NBA team. Seattle is planning to build a new stadium that will costP250 billion. Annual upkeep is expected to amount to P8,000,000. The turf will have to be replaced every 10 years at a cost of P9,500,000.Painting every 5 years will cost P750,000. If the city expects to maintain the facility indefinitely, what is the estimated capitalized cost at i = 8%per year?
- Austins cell phone manufacturer wants to upgrade their product mix to encompass an exciting new feature on their cell phone. This would require a new high-tech machine. You are excited about his new project and are recommending the purchase to your board of directors. Here is the information you have compiled in order to complete this recommendation: According to the information, the project will last 10 years and require an initial investment of $800,000, depreciated with straight-line over the life of the project until the final value is zero. The firms tax rate is 30% and the required rate of return is 12%. You believe that the variable cost and sales volume may be as much as 10% higher or lower than the initial estimate. Your boss understands the risks but asks you to explain the alternatives in a brief memo to the board, Write a memo to the Board of Directors objectively weighing out the pros and cons of this project and make your recommendation(s).Friedman Company is considering installing a new IT system. The cost of the new system is estimated to be 2,250,000, but it would produce after-tax savings of 450,000 per year in labor costs. The estimated life of the new system is 10 years, with no salvage value expected. Intrigued by the possibility of saving 450,000 per year and having a more reliable information system, the president of Friedman has asked for an analysis of the projects economic viability. All capital projects are required to earn at least the firms cost of capital, which is 12 percent. Required: 1. Calculate the projects internal rate of return. Should the company acquire the new IT system? 2. Suppose that savings are less than claimed. Calculate the minimum annual cash savings that must be realized for the project to earn a rate equal to the firms cost of capital. Comment on the safety margin that exists, if any. 3. Suppose that the life of the IT system is overestimated by two years. Repeat Requirements 1 and 2 under this assumption. Comment on the usefulness of this information.Economics The government plans to increase the capacity of her existing water transmission lines in Cebu City. Two plans are under consideration. Plan A requires the construction of a parallel pipeline, the flow being maintained by gravity. The initial cost is P189376952 and the life is 50 years, with an annual operating cost of P7825990 for the 1st 25 years and P10659043 for the next 25 years. Plan B requires the construction of a booster pumping station costing P100M with the life of 50 years. The pumping equipment cost an additional amount of P25M, it has a life of 25 years and a salvage value of P2M. The annual operating cost is P5M. Using the Present Value (PV) Method and an interest of 22% cpd. annually, what is the PV of Plan A?
- As part of the rehabilitation of the downtown area of a southern U.S. city, the Parks andRecreation Department expects to develop the space below several over passes intobasketball, handball, miniature golf, and tennis courts. The estimates are initial cost of$193,000; life of 20 years and, annual M&O costs of$18,000. The department expects16,000 people per year to use the facilities an average of 2 hours each. The value of therecreation has been conservatively set at $1 per hour. At a discount rate of 9% per year,what is the B/C ratio for the project?10.1 Great Lakes Clinic has been asked to provide exclusive healthcare services for next year’s World Exposition. Although flattered by the request, the clinic’s managers want to conduct a financial analysis of the project. An up-front cost of $160,000 is needed to get the clinic ready. Then, a net cash inflow of $1 million is expected from operations in each of the two years of the exposition. However, the clinic has to pay the organizers of the exposition a fee for the marketing value of the opportunity. This fee, which must be paid at the end of the second year, is $2 million. What are the net cash flows associated with the project? What is the project’s internal rate of return (IRR)? Assuming a project cost of capital of 10 percent, what is the project’s net present value (NPV)?A local government awards a landscaping company a contract worth $1.30 million per year for five years for maintaining public parks. The landscaping company will need to buy some new machinery before they can take on the contract. If the cost of capital is 5%, what is the most that this equipment could cost if the contract is to be worthwhile for the landscaping company? A. $5.35 million B. $5.63 million C. $5.91 million D. $5.07 million
- Jim Jones Sleepaway Camps, Inc. is looking for some payback period analysis for a new project in Janestown, Indiana. Suppose that the cost of acquiring the new camp, buildings, cabins, etc. and setting up trails and activities has an initial cost of $1.3M dollars but will generate the following cash-flows for the next four years: Year 1 $450,000 Year 2 $610,000 Year 3 $464,000 Year 4 $575,000 What is the payback period for this project8. Analysis of a replacement project Aa Aa At times firms will need to decide if they want to continue to use their current equipment or replace the equipment with newer equipment. The company will need to do replacement analysis to determine which option is the best financial decision for the company. Johnson Co. is considering replacing an existing piece of equipment. The project involves the following: The new equipment will have a cost of $1,800,000, and it will be depreciated on a straight-line basis over a period of six years (years 1-6). • The old machine is also being depreciated on a straight-line basis. It has a book value of $200,000 (at year 0) and four more years of depreciation left ($50,000 per year). The new equipment will have a salvage value of $0 at the end of the project's life (year 6). The old machine has a current salvage value (at year 0) of $300,000. Replacing the old machine will require an investment in net working capital (NWC) of $60,000 that will be…Q2: A town in northern Colorado is planning on investing in a water purification system. Three mutually exclusive systems have been proposed, and their capital investment costs and net annual benefits are the following (salvage values are negligible). System EOY A -$160,000 -$245,000 -$200,000 1 80,000 120,000 80,000 2 70,000 100,000 80,000 3 60,000 80,000 80,000 4 50,000 60,000 80,000 If the town's MARR is 10% per year, use the B-C ratio method to Calculate which system is best.
