: (15 points). (Related to Checkpoint 11.2) (Equivalent annual cost calculation) Barry Boswell is a financial analyst for Dossman Metal Works, Inc. and he is analyzing two alternative configurations for the firm's new plasma cutter shop. The two alternatives that are denoted A and B below perform the same task and although they each cost $95,000 to purchase and install they offer very different cash flows. Alternative A has a useful life of 7 years whereas Alternative B will only last for 3 years. The after-tax cash flows from the two projects are as follows:
a. Calculate each project's equivalent annual cost (EAC) given a discount rate of 10 percent. (Round to the nearest cent.)
a. Alternative A's equivalent annual cost (EAC) at a discount rate of 10% is: |
$ |
b. Alternative B's equivalent annual cost (EAC) at a discount rate of 10% is |
$ |
b. Which of the alternatives do you think Barry should select? Why? (Select the best choice below.)
Year Alternative A Alternative B
0 $(95000) $(95000)
1 (19000) (5000)
2 (19000) (5000)
3 (19000) (5000)
4 (19000)
5 (19000)
6 (19000)
7 (19000)
a. Alternative A's equivalent annual cost (EAC) at a discount rate of 10% is: |
$ 38513.52 |
b. Alternative B's equivalent annual cost (EAC) at a discount rate of 10% is |
$ 43200.91 |
Alternative A should be selected because its equivalent annual cost is less per year than the annual equivalent cost for Alternative B.
Workings
Year | A | B |
0 | -95000.00 | -95000.00 |
1 | -19000.00 | -5000 |
2 | -19000.00 | -5000 |
3 | -19000.00 | -5000 |
4 | -19000.00 | |
5 | -19000.00 | |
6 | -19000.00 | |
7 | -19000.00 | |
NPV | -187499.96 | -107434.26 |
A | B | |
EAC | 38513.52 | 43200.91 |
: (15 points). (Related to Checkpoint 11.2) (Equivalent annual cost calculation) Barry Boswell is a financial...
Barry Boswell is a financial analyst for Dossman Metal Works, Inc. and he is analyzing two alternative configurations for the firm's new plasma cutter shop. (Related to Checkpoint 11.2) (Calculating EAC) Barry Boswell is a financial analyst for Dossman Metal Works, Inc. and he is analyzing two alternative configurations for the firm's new plasma cutter shop. The two alternatives, denoted A and B below, will perform the same task, but alternative A will cost $75,000 to purchase, while alternative B...
FIN 302 Summer 2020 Sa Homework: Chapter 11 Homework Score: 0 of 1 pt 3 of 9 (2 complete) HW Score: 18.8%, 1.69 of 9 P11-4 (similar to) Question Help (Related to Checkpoint 11.2) (Calculating EAC) Barry Boswell is a financial analyst for Dossman Metal Works, Inc. and he is analyzing two alternative configurations for the firm's new plasma cutter shop. The two alternatives, denoted A and B below, will perform the same task, but alternative A will cost $90,000...
(Related to Checkpoint 18.2) (Calculating the cost of short-term financing) The R. Morin Construction Company needs to borrow $90,000 to help finance the cost of a new $135,000 hydraulic crane used in the firm's commercial construction business. The crane will pay for itself in one year, and the firm is considering the following alternatives for financing its purchase: Alternative A. The firm's bank has agreed to lend the $90,000 at a rate of 12 percent. Interest would be discounted, and...
(Related to Checkpoint 18.2) (Calculating the cost of short-term financing) The R. Morin Construction Company needs to borrow $120,000 to help finance the cost of a new $180,000 hydraulic crane used in the firm's commercial construction business. The crane will pay for itself in one year, and the firm is considering the following alternatives for financing its purchase: Alternative A. The firm's bank has agreed to lend the $120,000 at a rate ofb13percent. Interest would be discounted, and a 15...
1) Consider these two machines (alternatives): (12 Points) B A $5000 $1750 $700 $8200 $1850 $500 First Cost Uniform annual benefit Salvage Value Useful Life, in Years 4 If the MARR (minimum attractive rate of return) -7 % , which alternative should be selected? Use the Present worth Analysis method. 1) Consider these two machines (alternatives): (12 Points) B A $5000 $1750 $700 $8200 $1850 $500 First Cost Uniform annual benefit Salvage Value Useful Life, in Years 4 If the...
Question 13 15 points Save Answer The two ME alternatives shown are under consideration for facility improvements in a company in Abu Dhabi. Determine which one should be selected based on a B/C analysis. Assume an interest rate of 10% per year and a 5-year study period. Alternative X Alternative Y First costs, AED 40,000 90,000 20,000 Annual M&O costs, AED per year 50,000 150,000 Benefits, AED per year 120,000 Disbenefits, AED per year 30,000 10,000 Match the closest correct...
Question 13 15 points Save Answer The two ME alternatives shown are under consideration for facility improvements in a company in Abu Dhabi. Determine which one should be selected based on a B/C analysis. Assume an interest rate of 10% per year and a 5 year study period Alternative X Alternative Y 90,000 First costs, AED 40.000 50,000 20,000 Annual M&O costs, AED per year Benefits, AED per year 120,000 150,000 Disbenefits, AED per year 30,000 10,000 Match the closest...
Question 13 15 points Save Answer The two ME alternatives shown are under consideration for facility improvements in a company in Abu Dhabi. Determine which one should be selected based on a B/C analysis. Assume an interest rate of 10% per year and a 5 year study period Alternative X Alternative Y 90,000 First costs, AED 40.000 50,000 20,000 Annual M&O costs, AED per year Benefits, AED per year 120,000 150,000 Disbenefits, AED per year 30,000 10,000 Match the closest...
Question 13 15 points Save An The two ME alternatives shown are under consideration for facility improvements in a company in Abu Dhabl. Determine which one should be selected based on a B/c analysis. Assume an interest rate of 10% per year and a 5-year study period. Altereative X Alternative Y 90,000 40,000 First costs, AED 50,000 20,000 Annual M&0 costs, AED per year 150,000 Benefits, AED per year Disbenefits, AED per year 10,000 Match the closest comect answers for...
One of two alternatives will be selected to reduce flood damage in a rural community in central Arizona. The estimates associated with each alternative are available. Use B/C analysis at a discount rate of 7% per year over a 20-year study period to determine which alternative should be selected. For analysis purposes only, assume the flood damage would be prevented in years 3, 13, and 18 of the study period. Retention Pond Channel Initial Cost, $ 960,000 2,900,000 Annual Maintenance...