Question

1. Star Inc. must purchase a small size milling machine. The following is known about the machine and about possible cash flows. The machine is expected to have a useful life of 8 years. The company has a MARR of 7%. Determine the NPW of the machine. p=.30 p=40 p=30 First cost $40,000 $40,000 $40,000 Annual savings 2,000 5,000 8,000 Annual costs 12,000 8,000 6,000 Actual salvage value 4,000 5,000 6,500 2. The company accountant is uncertain which of three depreciation methods the firm should use for welding equipment that costs $150,000, and has a zero salvage value at the end of a 5-year depreciable life. Compute the depreciation schedule for the welding equipment using the methods listed: a. Straight line b. Double declining balance C. Sum-of-years' digits Based on your analysis, which depreciation method is most profitable for the firm? 3. A Petroleum company recently completed construction on a large refinery in Louisiana. The final construction cost was $71,000,000. The refinery covers a total of 260 acres. The Expansion and Acquisition Department at the company is currently working on plans for a new refinery in Texas. The anticipated size is approximately 360 acres. If the power-sizing exponent for this type of facility is 90, what is the estimated cost of construction?

Answer 1

Answer リ life of the Assel 8 years 71. for 8 years : 0.582 Pulpunt MARR 71. Present Value of Present Yake of amenity factor 6 #l-for 8 yealt = 5.991 Calculation present Values and nou Particulars py Py P=.30 P=.to P=.30 P=.30 postop:-30 First cost $ 4000 $4pom $ 40.00 O $448 07D) $470.000) Atomto Annual savings 2000 8000 5.971 11,912 29855 47,768 6000 8000 (17,768) (35 806) 5.971 (71,652) 6500 Actual salvage Value Net present Value ($97,382) ($55,003) (24,975) Since Net present Value of P2.30 is more. Hence Third option should be purchased 5600 Annual costs 12077 2910 3783 0-582 2328 SOOD 4000 3) $ 1,50.000 Cost of the welding machine 0 (2010) Useful life of the Asset = 5 years Computation Depreciation Salvage Value schedule under the following three methods.

line straight balance Double declining 3) Sun) of years - digits Method straight line depreciation Depreciation per -Annung . 150000 اک $ 30000 Depreciation par 30117 Methodz: Double declising method Rate Depreciation Balance Dep. Rate y opening closing balance 1. 20000 -20% 30,000 150000 96000 207 24,000 2- 1.20070 19200 76.800 204 96000 3 4 15360 61, Ano 76.800 20% 12,288 49, 152 5 61,440 100, 848 Method 3. Sum of years- digits Useful life 5 years 1+2+3+4+5 Sum of digits 15 Calculation Percentage 1 year Viso = 0.67-1 Scanned with CamScanner

2 young - išX100 = 13.33% 3 3 year Xin 20 % 15 A year 4 x 100 = 26.67 7. 15 5 year 5 x 100 = 33.334. 15 Depreciation calculation Yes Cast Dep. / Depreciation 1 $ 1.59002 6.674. $ 10005 13.33.1 2 $ 1,50 to $ 19,995 3 $ 1,50.000 20% wig $ 30.000 $ 40,005 4 $ 1,50 000 26.677 33-337 $ 1,50 000 ک $ 50.000 Analysis If the cash flows from the ego equipment are equal in all the yess then straight line netifed is suggested 3) If the cash flows from the equipment are higher in first years reducing then double method is suggested. 3) If the cash flows from the equipment are b depend years they sum of years - digits method. and in later years declining don CS Scanned with CamScanner

3) Cost of the project $-71,000 000 - new Area covered by refinery = 260 acres. company is cenfently working on plans for refinery in texas. the Anticipated size 360 acres. app. If the power oi-sizing exponent for this type of facility 0.90 They Based on this power-sizing exponent. of project = $ 71,000.00 x 0.90 $63,900,000 Calculation of estimated cost of new refinery is The cost $ 63,900.000 X 360 260 $ 88, 476,923 .