Question

4.12 Biomet Implants is planning new online patient diagnostics for surgeons while they operate. The new system will cost $300,000 to install in an operating room $5,000 annually for maintenance, and have an expected life of 4 years. The revenue per system is estimated to be $80,000 in year 1 and to increase by $10,000 per year through year 4. Determine if the project is economically justified using PW analysis and a MARR of 10% per year 4.16 Halogen-free liquid crystal polymers are used for lead-free soldering without corrosion and maintenance issues. The polymers can be produced by either of two methods. Equipment for method A costs $70,000 initially and has a S15,000 salvage value after 3 years. The operating cost with this method will be $20,000 per year. Method B will have a first cost of $140,000, an operating cost of S8,000 per year, and a $40,000 salvage value after its 3-year life. At an interest rate of 12% per year, which method would be used on the basis of a present worth analysis? Solve using tabulated factors 4.18 The Bureau of Indian Affairs provides various services to American Indians and Alaskan Natives. The Director of Indian Health Services is working with chief physicians at some of the 230 clinics nationwide to select the better of two medical X-ray system alternatives to be located at secondary-level clinics. At 5% per year and using the table below, select the more economical system Del Medical 250,000 231.000 Siemens 224,000 235,000 26,000 First Cost (S AOC ($ per year Overhaul in Y3 (S Overhaul in Y4 ($ Salvage Value (S Expected Life (Years -140,000 50,000 10,000 6 6 4.23 What is the present worth of a $40,000 bond that has a bond interest rate of 6% per year, payable semiannually? The bond matures in 20 years. The interest rate in the market place is 8% per year compounded semiannually. Is this an attractive investment as stated? 4.26 An investor thought that market interest rates were going to decline. He paid $19,000 fora corporate bond with a face value of $20,000. The bond has an interest rate of 10% per year payable annually. If the investor plans to sell the bond immediately after receiving the 4th interest payment, how much will he have to receive (sell it for) in order to make a return of 14% per year?

Answer 1

4.12).

Consider the given problem here the new system will cost “$300,000” to install in an operating room, “$5,000” annually for maintenance and the revenue per system is estimated to be “$80,000” in “year1” and increase by “$10,000” per year through “year4”.

So, the PW is given by.

=> PW= (-$300,000)+ ($80,000-$5,000)/1.1+ ($90,000-$5,000)/1.1^2+ ($100,000-$5,000)/1.1^3+ ($110,000-$5,000)/1.1^4.

=> PW = (-$300,000) + $75,000/1.1 + $85,000/1.1^2 + $95,000/1.1^3 + $105,000/1.1^4.

=> PW = (-$300,000) + $68,181.8182 + $70,247.9339 + $71,374.9061 + $71,716.4128.

=> PW = (-$300,000) + $281,521.071 = (-$18,478.929) < 0.

So, here the PW is negative, => economically the project is not justifiable.

4.16).

Now, in “method A” the initial cost is “$70,000” and the operating cost “$20,000” with salvage value “$15,000” after 3 years. So, the PW of the “method A” is given by.

=> PW(A) = (-$70,000) + (-$20,000)/1.12 + (-$20,000)/1.12^2 + (-$20,000)/1.12^3 + $15,000/1.12^3.

=> PW(A) = (-$70,000) - $17,857.1429 - $15,943.8776 - $14,235.6049 + $10,676.7037.

=> PW(A) = (-$118,036.6254) + $10,676.7037 = (-$107,359.92).

Now, in “method B” the initial cost is “$140,000” and the operating cost “$8,000” with salvage value “$40,000” after 3 years. So, the PW of the “method B” is given by.

=> PW(B) = (-$140,000) + (-$8,000)/1.12 + (-$8,000)/1.12^2 + (-$8,000)/1.12^3 + $40,000/1.12^3.

=> PW(B) = (-$140,000) + (-$7,142.8571) + (-$6,377.5510) + (-$5,694.2419) + $28,471.2099.

=> PW(B) = (-$140,000) + (-$7,142.8571) + (-$6,377.5510) + (-$5,694.2419) + $28,471.2099.

=> PW(B) = (-$130,743.4401) < PW(A).

So, here the “method A” having higher PW compare to “method B”, => So, “method A” should be chosen.