Question

In: Economics

Two methods of maintenance for indefinite service life are being evaluated: Method 1. The first cost...

Two methods of maintenance for indefinite service life are being evaluated:

Method 1. The first cost would be $60,000, and $25,000 would be required at five-year intervals forever.

Method 2. The first cost would be $150,000, and $180,000 would be required at 50-year intervals of forever.

At I i = 12%, which method is the better one?

Expert Solution

Here we have to calculate the capitalized cost of the maintenance costs:

Method 1:

Capitalized costs = P + [F(A/F, i, n)] / i

= 60,000 + [25,000(A/F, 12%, 5)] / 0.12

= 60,000 + [25,000(0.1574)] / 0.12

= 60,000 + 32,791.67

= $92,791.67

Method 2:

Capitalized costs = P + [F(A/F, i, n)] / i

= 150,000 + [180,000(A/F, 12%, 50)] / 0.12

= 150,000 + [180,000(0.00042)] / 0.12

= 150,000 + 630

= $150,630

Since the capitalized cost of method 1 is less than method 2, therefore, method 2 is better one.

Rahul Sunny answered 5 hours ago

1. Two new issue bonds are being evaluated by a portfolio manager. The first bond is...

1. Two new issue bonds are being evaluated by a portfolio manager. The first bond is a 5-year 3.8% semiannual coupon and the second bond is a 20-year 4.4% semiannual coupon. Both bonds are expected to be issued at par. a. Calculate the modified duration for each bond using a 10bp change b. Calculate the convexity for each bond using a 10bp change. Someone help please!

Write two methods. The first method is randFill2DArray. This method will fill a two-dimensional array with...

Write two methods. The first method is randFill2DArray. This method will fill a two-dimensional array with random integers between a given min and max value. It must accept for parameters, min and max values for the creation of random integers, and rows and columns for the number of rows and columns of the array. The method should return an array of rows by columns size, filled with random integers between min and max values. The second method is called printRA,...

The following two investment alternatives are being evaluated using the B/C ratio method. The alternatives have...

The following two investment alternatives are being evaluated using the B/C ratio method. The alternatives have a 5-year service life and the MARR is 18% per year. Alternative A Alternative B Capital investment $10,900 $16,000 Annual revenues 4,000 7,500 Annual costs 250 900 Market value at EOY 5 5,000 9,200 Click the icon to view the interest and annuity table for discrete compounding when i equals=18%per year. Calculate the modified B/C ratio of Alternative A A. 1.32 B.1.35 C.1.26 D.0.90...

Two mutually exclusive cost alternatives, Machine A and Machine B, are being evaluated. Given the following...

Two mutually exclusive cost alternatives, Machine A and Machine B, are being evaluated. Given the following time events and incremental cash flow, if the MARR is 12% per year, which alternative (Machine A or Machine B) should be selected on the basis of the incremental rate of return analysis? Assume Machine B requires the extra $10,000 initial investment. (You can use Excel). Year Incremental Cash Flow ($) (Machine B - Machine A) 0 -10,000 1 - 4 1,300 5...

Exercise 11-33 Cost Allocation: Reciprocal Method (LO 11-4) University Printers has two service departments (Maintenance and...

Exercise 11-33 Cost Allocation: Reciprocal Method (LO 11-4) University Printers has two service departments (Maintenance and Personnel) and two operating departments (Printing and Developing). Management has decided to allocate maintenance costs on the basis of machine-hours in each department and personnel costs on the basis of labor-hours worked by the employees in each. The following data appear in the company records for the current period: Maintenance Personnel Printing Developing Machine-hours ? 455 455 2,590 Labor-hours 315 ? 294 1,491 Department...

RECIPROCAL METHOD: University Printers has two service departments (Maintenance and Personnel) and two operating departments (Printing...

RECIPROCAL METHOD: University Printers has two service departments (Maintenance and Personnel) and two operating departments (Printing and Developing). Management has decided to allocate maintenance costs on the basis of machine-hours in each department and personnel costs on the basis of labor-hours worked by the employees in each. The following data appear in the company records for the current period: Maintenance Personnel Printing Developing Machine-hours — 1,000 1,000 3,000 Labor-hours 500 — 500 2,000 Department direct costs $ 5,000 $ 12,000...

Problem: The possibility of acquiring new machinery at a cost of $ 45,000 is being evaluated,...

Problem: The possibility of acquiring new machinery at a cost of $ 45,000 is being evaluated, which may be depreciated using the 5-year MACRS method. The machine must save $ 23,000 annually during the 5 years of its useful life and maintenance costs are estimated at $ 7,300 annually. a) If the company is taxed at a rate of 42%, determine if the investment meets the requirement of providing a minimum return of 12% after taxes (After-Tax analysis).Assume that at...

Question 4: Service department cost allocation Inns Battery Company has two service departments: Maintenance and Personnel....

Question 4: Service department cost allocation Inns Battery Company has two service departments: Maintenance and Personnel. Maintenance Department costs are allocated on the basis of budgeted maintenance-hours. Personnel Department costs are allocated based on the number of employees. Data on budgeted maintenance-hours and number of employees are as follows: Support Departments Production Departments Maintenance Department Personnel Department A B Budgeted costs $180,000 $30,000 $80,000 $120,000 Budgeted maintenance-hours n/a 240 720 240 Number of employees 20 n/a 60 120 Required: 4a....

Time-Based Preventive Maintenance and Condition-Based Preventive Maintenance are two methods that are used in maintenance. Explain...

Time-Based Preventive Maintenance and Condition-Based Preventive Maintenance are two methods that are used in maintenance. Explain your understanding of the application of each and provide three examples of each method. In addition, discuss which is more effective and optimal.

Two alternatives are under consideration. The first alternative will cost $100,000, require $20,000 in maintenance and...

Two alternatives are under consideration. The first alternative will cost $100,000, require $20,000 in maintenance and operation costs each year, and a life cycle of 4 years. The second alternative will cost $300,000, require $5,000 in maintenance and operation costs each year and a life of 6 years. Neither option will have a salvage value. In order to compute the present worth or future worth, how many years of each alternative should I use to accurately compare the two alternatives.