A company wants to find out whether it should upgrade its office or move to a new one.
Given MARR of 12% and an inflation rate of 3%, find the better economical option:
| Upgrade Office | New Office | |
| Cost | 300,000 | 450,000 |
| Service Life | 10 | 20 |
| Annual Cost | 30,000 | 20,000 |
A company wants to find out whether it should upgrade its office or move to a...
Company Y is going to upgrade its facility. The company has a choice between two models. Model A, with a first cost of $510 000 and a service life of 6 years, would save $100 000 per year. Model B, with a first cost of $110 000 and an expected service life of 18 years, would save $15 000 per year. If the company’s MARR is 8 percent, which model is the better buy? Consider both payback period and annual...
The US Post Office is considering outsourcing their overnight priority mail service out of their Miami office region. However, the number of letters that delivered each year varies. The outsources service would cost $2.50 per letter. If the post office is to continue to deliver the service, it must upgrade its current equipment at a cost of $50,000 and it would cost them $1.00 per letter for the US Post Office to provide the service. The useful life of the...
A production manager wants to upgrade the manufacturing system by adding a new machine. He found that one of two machines can effectively be used; their cost data are given in Table Q3 below: Table Q3 Alternative Machines Cost Element M/C I M/C II First cost Anual Maintenance Operating cost/hr Useful life Salvage value £150,000 £3000 £1.6 6 years £10,000 £250,000 £3500 £1.2 8 years £25,000 Using an interest rate of 15% per year compounded annually, answer the following: What is the...
A firm is considering three mutually exclusive alternatives as part of an upgrade to an existing transportation network. At EOY 10, alternative III would be replaced with another alternative Ill having the same installed cost and net annual revenues. If MARR is 10% per year, which alternative (if any) should be chosen? Use the incremental IRR procedure. $40,000 $6,500 $20,000 $5,200 Installed cost Net annual revenue Salvage value Useful life Calculated IRR $30,000 $5,600 0 20 years 18.0% 20 years...
The Nanjing Company produces and sells 5,000 of baby carriages per year at a selling price of $100 each. Its current production equipment was purchased two years ago for $500,000. The equipment is being depreciated on the straight-line basis with a 5-year useful life and zero salvage value. The emergence of a new technology has led Nanjing to consider either upgrading or replacing the production equipment. The following table presents data for the two alternatives: Upgrade Replace One-time costs $300,000...
A company wants to invest $200,000 in a piece of equipment with a 10 year service life. Additional operating costs of $5,000 per year are expected. MARR is 12%. The equipment will have a salvage value of $10,000 at the end of service. (a) What is the annual equivalent cost of this investment? (b) If the equipment would produce 10,000 widgets per year, and the company can purchase widgets for $4.50 each, should the company make or buy the widgets?
Chiwen, Inc. is considering whether to replace an office copy machine with a new model. The manager is trying to decide whether to buy the machine outright or lease it from a copier company. He has generated the following information about the two options. Purchase Option Lease Option Purchase price $ 25,000 Annual lease payment (includes all supplies and maintenance) $ 7,000 Annual operating costs (paper, toner, maintenance, etc.) $ 2,000 Useful life 5 years Contract length 5 years Salvage value $...
0 out of 15 Data center X: Cost of purchase is 500,000; cost of installation is 300,000; maintenance per year 25,000; after 15 years the equipment would be refurbished for X 50.000: life time is 20 years. Data center Y: Cost of purchase is 400,000; cost of installation is 200,000: maintenance per year 58,000; annual service cost 5,000, after 15 years the equipment would be refurbished for 30,000; life time is 25 years. Compare the alternatives and choose the best...
You are working on an assembly line and you want to find out how confident by 90% that the project will be a good investment? The MARR is 12%. Optimistic Most Likely Pessimistic Initial Cost $40,000 $32,000 $49,000 Annual Cost $17,000 $24,000 $25,000 Annual Revenue $30,000 $37,000 $35,000 Salvage Value (PV) $8,000 $5,000 $5,000 Life Cycle 25 years 15 years 15 years Probablity 65% 75% 55%
Ch. Benefit / Cost Analysis Problem 1: ICON Co. will perform a project that will have a first cost of $1 million with an annual maintenance cost of $50,000 and a 10 year life. This project is expected to benefit the company with $250,000 per year. But also the lost income to the company is estimated to be $30,000 per year. At an interest rate of 6% per year, should the project be undertaken? Problem2:ICON Co. is planning to make...