3. Determine the annual worth (AW) of a project, where it requires capital investment of BD 50,000, has a salvage value of BD 6,000 after 6 years, incurs annual expenses of BD 2,000, and provides annual revenue of BD 12,000. Using a MARR of 11%. Analyze your answer if it is a profitable or non-profitable investment.
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- A design change being considered by Mayberry, Inc., will cost $6,000 and will result in an annual savings of $1,000 per year for the 6-year life of the project. A cost of $2,000 will be avoided at the end of the project as a result of the change. MARR is 8%/yr. Solve, a. What is the internal rate of return of this investment? b. What is the decision rule for judging the attractiveness of investments based on internal rate of return? c. Should Mayberry implement the design change?Question 1 A design firm is considering multiple independent projects for the upcoming quarter. For a MARR of 6.5% per quarter. What is your recommendation to the company based on a PW analysis? Project Initial Payment Monthly Costs (Today) A $1,500,000 $170,000 B $245,000 $200,000 C $300,000 $150,000 Payments are inflows for the design firm. Costs are outflows for the design firm. Payment at month 12 of $1,000,000 Costs at month 9 of $100,000 None Final Payment (At end of project) $3,000,000 Project Length Other Cash flows 2 years $3,000,000 18 months $4,000,000 30 months1. The Present Worth Method A project your firm is considering for implementation has these estimated costs and revenues: an investment cost of $50,000; maintenance costs that start at $5,000 at the end of year (EOY) 1 and increase by $1,000 for each of the next 4 years, and then remain constant for the following 5 years; savings of $20,000 per year (EOY 1–10); and finally a resale value of $35,000 at the EOY 10. If the project has a 10-year life and the firm’s MARR is 10% per year, what is the present worth of the project? Is it a sound investment opportunity?
- 2. Three mutually exclusive design alternatives are being considered. The estimated sales and cost data for each alternative have been tabulated. The MARR is 20% per year. Annual revenues are based on the number of units sold and the selling price. Annual expenses are based on fixed and variable costs. Determine which selection is preferable based on F W. Confirm your selection by separately checking is preferable using PW. A В Investment cost $ 30,000 $ 60,000 $ 50,000 Est. units sold/year 15,000 20,000 18,000 Unit selling price $ 3.50 $ 4.40 $ 4.10 Unit variable cost $ 1.00 $ 1.40 $ 1.15 $ 15,000 $ 30,000 $ 20,000 $ 26,000 $ 15,000 Fixed annual expenses Market value Useful life 10 yrs 10 yrs 10 yrsP is using an 11% annual interest rate to decide if they should buy Truck A or Truck B. Which truck is more economical to buy, assuming that the two trucks serve similarfunctions and purposes? Use (a) Annual Cost Method (b) Present Worth Method, (c) Rateof Return on Additional Investment method. Formulas to be used: Rate of return on additional investment =(Savings of Benefits / Additional Capital) x 100% ROR≥ MARR (Choose the alternative with larger capital) ROR ≤ MARR (Choose the alternative with lesser capital investment)The following four alternative investments are being compared at MARR of 12%. Which investment is the most economical over the entire service life? Alt. L Alt. W 10 10 $590,000 $645,000 Alt. D 10 $495,000 14.2% 9 13.4% 15% 6 5 Service life (years) Net PW IRR Disc payback period (yrs) Alt. X 10 $533,000 16.2% 8 OA. Alternative D because it has the longest payback period OB. Alternative W because it has the highest net PW OO C. Alternative L because it has the shortest payback period OD. Alternative X because it has the highest IRR
- You have been asked to perform an economic evaluation of two projects and recommend one of them for implementation. The project parameters are as follows: Project A Project B Discount Rate 4.0% 4.0% Your analysis concludes that: Project Cost $1,000,000 $750,000 Project Life (yrs) 10 15 Elec. Savings Elec. Cost (kWh/yr) ($/kWh) 800,000 600,000 O Project A is preferable, but Project B also has attractive performance. O Project B is preferable, but Project A also has attractive performance. O Project B is preferable and Project A results in a net loss. O Project A is preferable and Project B results in a net loss. $0.12 $0.12 Annual Cost Escalation Rate 1.5% 1.5%1. Breakeven Analysis An aerodynamic three-wheeled automobile (the Dart) runs on compressed naturalgas stored in two cylinders in the rear of the vehicle. The $13,000 Dart can cruise at speeds up to 80 miles per hour, and it can travel 100 miles per gallon of fuel. Another two-seater automobile costs $10,000 and averages 50 miles per gallon of compressed natural gas. If fuel costs $8.00 per gallon and MARR is 10% and 15%per year, over what range of annual miles driven is the Dart more economical? Assume a useful life of five years for both cars.2. Sensitivity Analysis We know the standard means of cutting the high cost of driving our automobiles—slow down your speed, no jack rabbit starts, inflate tires properly, clean air filters regularly, and so on. Another way to reduce the cost of driving is to join every bigrigger in the United States and half of Europe-go diesel. Diesels are inherently more efficient than gasoline engines because they deliver a third better fuel mileage. They…15. You want to open a new business but for the first 3 years you wont make any income as it takes time for the paperwork and approvals to process. After your business is up and running, you will make $75,000 per year forever. What is the capitalized cost of the income at 8% per year? What does the capitalized cost represent in layman terms?
- You have decided to open a microbrewery selling university-themed beers as one of your product lines. You need to conduct a breakeven analysis of sales and price. You know your fixed costs but based on your marketing plan you are not sure of pricing and sales. Your company MARR is 5%, and fixed costs include an initial capital investment of $250,000 with fixed annual expenses of $100,000. Use a 5-year planning horizon and assume that these expenses will not grow with inflation. a. Draw the cash flow diagram. b. Populate the following table and plot the NPW results in a meaningful plot. (Make sure you label your axis, and your plot should contain three curves.) c. Make a pricing recommendation as a function of sales. You would like to make a minimum of $100,000 for your work on this project.Axis Corp. is studying two mutually exclusive projects. Project Kelvin involves an overhaul of the existing system; it will cost $52,500 and generate cash inflows of $25,000 per year for the next 3 years. Project Thompson replaces the existing system; it will cost $265,000 and generate cash inflows of $61,000 per year for 6 years. Using a(n) 9.13% cost of capital, calculate each project's NPV, and make a recommendation based on your findings. The NPV of project Kelvin is $ (Round to the nearest cent.)2. Three mutually exclusive design alternatives are being considered. The estimated sales and cost data for each alternative are given on the next page. The MARR is 20% per year. Annual revenues are based on the number of units sold and the selling price. Annual expenses are based on fixed and variable costs. Determine which selection is preferable based on AW. State your assumptions. A в Investment cost Estimated units 60,000 20,000 $50,000 18,000 CLA to be sold/year Unit selling price, $/unit Variable costs, $/unit Annual expenses (fixed) Market value Useful life $4.40 $4.10 $1.00 $1.40 $1.15 $15,000 $30,000 $26,000 $20,000 10 years $15,000 10 years B PUBLICATIO 10 years