Question

In: Accounting

The chief ranger of the state’s Department of Natural Resources is considering a new plan for...

The chief ranger of the state’s Department of Natural Resources is considering a new plan for fighting forest fires in the state’s forest lands. The current plan uses eight fire-control stations, which are scattered throughout the interior of the state forest. Each station has a four-person staff, whose annual compensation totals $330,000. Other costs of operating each base amount to $230,000 per year. The equipment at each base has a current salvage value of $250,000. The buildings at these interior stations have no other use. To demolish them would cost $23,000 each.

The chief ranger is considering an alternative plan, which involves four fire-control stations located on the perimeter of the state forest. Each station would require a six-person staff, with annual compensation costs of $430,000. Other operating costs would be $240,000 per base. Building each perimeter station would cost $330,000. The perimeter bases would need helicopters and other equipment costing $630,000 per station. Half of the equipment from the interior stations could be used at the perimeter stations. Therefore, only half of the equipment at the interior stations would be sold if the perimeter stations were built.

The state uses a 10 percent hurdle rate for all capital projects. The chief ranger has decided to use a 10-year time period for the analysis.

Use Appendix A for your reference. (Use appropriate factor(s) from the tables provided.)

Required:

Use the incremental-cost approach to prepare a net-present-value analysis of the chief ranger’s decision between the interior fire-control plan and the perimeter fire-control plan. (Round your "Discount factors" to 3 decimal places. Negative amounts should be indicated by a minus sign.)

Can you please show working please. I saw the exact question on cheggs but the answer is incorrect and there is now way ii could fallow it.Besides, I plug in the answer they have but it is incorrect

Solutions

Expert Solution

Incremental
0 1-10
Initial costs:
Building costs F -1320000
Cost of equipment I -2520000
Salvage value of old equipment G 1000000
Cost of demolishing existing stations H -184000
Annual costs:
Compensation costs C 920000
Other operating costs E 880000
Total Costs -3024000 1800000
Hurdle rate 10% 10%
Discounting factor 1 6.145
Present value -3024000 11061000
Net Present Value 8037000

Working:

Present Proposed Incremental
(1) (2) (2) - (1)
Number of stations A 8 4
Annual compensation per station B -330000 -430000
Total annual compensation (A x B) C -2640000 -1720000 920000
Other annual operating costs per station D -230000 -240000
Total annual operating costs (D x A ) E -1840000 -960000 880000
Cost of building new stations (330,000 x 4) F -1320000 -1320000
Salvage value of existing stations (250,000 x 4) G 1000000 1000000
Cost of demolishing existing stations (23,000 x 8) H -184000 -184000
Cost helicopter and other equipment (630,000 x 4) I -2520000 -2520000

Related Solutions

The chief ranger of the state’s Department of Natural Resources is considering a new plan for...
The chief ranger of the state’s Department of Natural Resources is considering a new plan for fighting forest fires in the state’s forest lands. The current plan uses eight fire-control stations, which are scattered throughout the interior of the state forest. Each station has a four-person staff, whose annual compensation totals $360,000. Other costs of operating each base amount to $260,000 per year. The equipment at each base has a current salvage value of $280,000. The buildings at these interior...
The chief ranger of the state’s Department of Natural Resources is considering a new plan for...
The chief ranger of the state’s Department of Natural Resources is considering a new plan for fighting forest fires in the state’s forest lands. The current plan uses eight fire-control stations, which are scattered throughout the interior of the state forest. Each station has a four-person staff, whose annual compensation totals $340,000. Other costs of operating each base amount to $240,000 per year. The equipment at each base has a current salvage value of $260,000. The buildings at these interior...
The chief ranger of the state’s Department of Natural Resources is considering a new plan for...
The chief ranger of the state’s Department of Natural Resources is considering a new plan for fighting forest fires in the state’s forest lands. The current plan uses eight fire-control stations, which are scattered throughout the interior of the state forest. Each station has a four-person staff, whose annual compensation totals $270,000. Other costs of operating each base amount to $170,000 per year. The equipment at each base has a current salvage value of $190,000. The buildings at these interior...
The chief ranger of the state’s Department of Natural Resources is considering a new plan for...
The chief ranger of the state’s Department of Natural Resources is considering a new plan for fighting forest fires in the state’s forest lands. The current plan uses eight fire-control stations, which are scattered throughout the interior of the state forest. Each station has a four-person staff, whose annual compensation totals $320,000. Other costs of operating each base amount to $220,000 per year. The equipment at each base has a current salvage value of $240,000. The buildings at these interior...
The Department of Natural Resources in New York wants to estimate the average length of lake...
The Department of Natural Resources in New York wants to estimate the average length of lake trout in Keuka Lake. They randomly take a sample of 100 lake trout and find the sample average length to be 18.3 inches with a sample standard deviation of 2.5 inches. Calculate a 99 % confidence interval for the average length of lake trout in Keuka Lake.
The state’s Secretary of Education is considering the purchase of a new computer for $100,000. A...
The state’s Secretary of Education is considering the purchase of a new computer for $100,000. A cost study indicates that the new computer should save the Department of Education $30,000, measured in real dollars, during each of the next eight years. The real interest rate is 20 percent and the inflation rate is 10 percent. As a governmental agency, the Department of Education pays no taxes. Use Appendix A for your reference. (Use appropriate factor(s) from the tables provided.) Exercise...
As an economist working for the Minnesota Department of Natural Resources, you project the state will...
As an economist working for the Minnesota Department of Natural Resources, you project the state will collect $1.7 million every year in revenue from cross-country ski passes. All ski pass revenue collected during the year is deposited in an account that earns 7.5 percent nominal return per year. Assuming inflation is projected at 3.3 percent per year over the next 15 years: A. What is the nominal value of the account after 15 years of collecting ski pass revenue (each...
Copperhead Resources Corp. is a Wyoming natural resources company. The managers are considering buying the rights...
Copperhead Resources Corp. is a Wyoming natural resources company. The managers are considering buying the rights to property that has strong potential for copper production from an open pit mine. Managers project the following net cash flows ($ millions): Year 1: $0 Year 2: $0 Year 3: $12 Year 4: $30 Year 5: $35 Year 6: $18 After year 6, the copper mine will be played out and not profitable to continue mining. Based on the risk of this project,...
Copperhead Resources Corp. is a Wyoming natural resourcescompany. The managers are considering buying the rights...
Copperhead Resources Corp. is a Wyoming natural resources company. The managers are considering buying the rights to property that has strong potential for copper production from an open pit mine. Managers project the following net cash flows ($ millions):Year 1: $0Year 2: $0Year 3: $19Year 4: $29Year 5: $28Year 6: $22After year 6, the copper mine will be played out and not profitable to continue mining.Based on the risk of this project, the managers believe that an appropriate annual discount...
The Human Resources Department of a company conducts a survey to determine if a new medical...
The Human Resources Department of a company conducts a survey to determine if a new medical insurance plan is viewed favorably. Out of 200 employees surveyed 80 said they liked the change.    a. Calculate a 95% confidence interval for the population proportion who view the change favorably. b. What is the proper interpretation of the interval constructed in Part a? i. There is a 95% chance that the population proportion lies within the constructed interval. ii. If 20 similar...
ADVERTISEMENT
ADVERTISEMENT
ADVERTISEMENT