A new asset is available for $227,000. O&M costs are $34,000 each year for the first...

A new asset is available for $227,000. O&M costs are $34,000 each year for the first five years, $51,000 in year six, $79,100 in year seven, and $121,800 in year eight. Salvage values are estimated to be $204,000 after one year and will decrease at the rate of 50% per year thereafter. At a MARR of 18%, determine the economic service life of the asset. Enter your answer as an integer from 1 to 8

Solutions

Expert Solution

Particulars	Year
Figures in $	0	1	2	3	4	5	6	7	8
Asset Purchased (Outflow)	227000	0	0	0	0	0	0	0	0
O & M (Note-2) (Outflow)	0	34000	34000	34000	34000	34000	51000	79100	121800
Present Value of O & M expense	0	28813	53231	73925	91462	106323.8	125215.8	146046	178450
Salvage value	0	204000	102000	51000	25500	12750	6375	3187.5	1593.75
Present Value of Salvage value (Inflow)	0	172881	73254.81	31040	13152	5573.14	2361.5	1000.63	424
Net Ouflow at 0 year (Outflow - Inflow)	0	-82932	-206976	-269885	-305310	-327751	-349854	-372045	-405026

Note-1
Formula for Present value is as below
PV= 1/(1+r)n

Note -2 : Since O & M is recurring cost till 8th year hence cumulative present value taken, for example PV of 2nd year O &M expense is $24418.27, however O & M is recurring cost hence while calculating present value of 2nd year we need to add on PV of 1st year also, and so on till 8th year.

jeff jeffy answered 1 year ago

Next > < Previous

Related Solutions

A new asset is available for $239,000. O&M costs are $24,000 each year for the first...

A new asset is available for $239,000. O&M costs are $24,000 each year for the first five years, $37,680 in year six, $57,700 in year seven, and $88,300 in year eight. Salvage values are estimated to be $198,000 after one year and will decrease at the rate of 17% per year thereafter. At a MARR of 12%, determine the economic service life of the asset. Enter your answer as an integer from 1 to 8.

"A new asset is available for $236,000. O&M costs are $10,000 each year for the first...

"A new asset is available for $236,000. O&M costs are $10,000 each year for the first five years, $13,300 in year six, $19,300 in year seven, and $28,800 in year eight. Salvage values are estimated to be $144,000 after one year and will decrease at the rate of 49% per year thereafter. At a MARR of 10%, determine the economic service life of the asset. Enter your answer as an integer from 1 to 8." Answer is 8

"A new delivery truck is available for $200,000. O&M costs are $21,000 each year for the...

"A new delivery truck is available for $200,000. O&M costs are $21,000 each year for the first five years, $33,600 in year six, $52,100 in year seven, and $81,300 in year eight. Salvage values are estimated to be $150,000 after one year and will decrease at the rate of 17% per year thereafter. At a MARR of 17%, determine the economic service life of the truck. Enter your answer as an integer from 1 to 8."

A new asset has been proposed to your company: Year Investment O & M Costs Salvage...

A new asset has been proposed to your company: Year Investment O & M Costs Salvage Value 0 $14,000 1 $3,400 $8,000 2 $4,600 $6,000 3 $5,800 $4,000 4 $7,200 $2,000 5 $8,300 0 How long should the asset be kept? Use a MARR of 12%.

Some factory equipment was bought at a cost of $100,000. The O&M costs for the first...

Some factory equipment was bought at a cost of $100,000. The O&M costs for the first year were $10,000 and they are expected to increase by $2,500 per year thereafter. The market value of the equipment declines by 15% per year over its 5-year life. What is the minimum cost life for this equipment? Assume MARR = 4%. Group of answer choices 5 years 3 years 2 years 4 years

Alternative R has a first cost of $88,000, annual M&O costs of $62,000, and a $20,000...

Alternative R has a first cost of $88,000, annual M&O costs of $62,000, and a $20,000 salvage value after 5 years. Alternative S has a first cost of $175,000 and a $58,000 salvage value after 5 years, but its annual M&O costs are not known. Determine the M&O costs for alternative S that would yield a required incremental rate of return of 23%. The M&O cost for alternative S is $

States Probability Asset M Return Asset N Return Asset O Return Boom 34% 12% 21% 4%...

States Probability Asset M Return Asset N Return Asset O Return Boom 34% 12% 21% 4% Normal 51% 10% 14% 10% Recession 15% 4% 1% 12% Benefits of diversification. Sally Rogers has decided to invest her wealth equally across the following three assets: a. What are her expected returns and the risk from her investment in the three assets? How do they compare with investing in asset M alone? Hint: Find the standard deviations of asset M and of the...

States Probability Asset M Return Asset N Return Asset O Return Boom 32% 13% 23% 5% ...

States Probability Asset M Return Asset N Return Asset O Return Boom 32% 13% 23% 5% Normal 45% 11% 15% 11% Recession 23% 5% 3% 13% a. What is the expected return of investing equally in all three assets M, N, and O? - what is the expected return of investing in asset M alone? - what is the standard deviation of the portfolio that invests equally in all three assets M, N, and O? - what is the standard...

States Probability Asset M Return Asset N Return Asset O Return Boom 27% 10% 21% 2% ...

States Probability Asset M Return Asset N Return Asset O Return Boom 27% 10% 21% 2% Normal 50% 8% 12% 8% Recession 23% 2% 1% 10% a. What is the expected return of investing equally in all three assets M, N, O? b. What is the expected return of investing in asset M alone? c. What is the standard deviation of the portfolio that invests equally in all three assets? d. What is he standard deviation of asset M?

Development of a new computer network requires $1,007,324 as first costs and $45,051 per year as...

Development of a new computer network requires $1,007,324 as first costs and $45,051 per year as operating costs. It will be in operation for the next 5 years bringing $542,338 as annual revenue over this period. It is also known that MARR is 15%, and the depreciation rate associated with the first cost is 20%. If you are asked to construct sensitivity graphs for (-20%, +20%) interval, what will be the slope of the line associated with operating costs in...

Subjects