Question
In: Operations Management
1) The machines shown below are under consideration for an improvement to an automated candy bar...
1) The machines shown below are under consideration for an improvement to an automated candy bar wrapping process. Determine which machine should be selected on the basis of an Annual Worth Analysis using an interest rate of 10% per year. (50 points) (Remember to include complete calculations for AWmachine C, AWmachine D, and selection) Machine C Machine D First cost, $ –40,000 –75,000 Annual cost, $/year –15,000 –10,000 Salvage value, $ 12,000 25,000 Life, years 3 6 Chapter 7_Rate of Return Analysis (single project)
2) Swagelok Enterprises is a manufacturer of miniature fittings and valves. Over a 10-year period, the costs associated with one product line were as follows: first cost of $30,000 and annual costs of $18,000. Annual revenue was $27,000, and the used equipment was salvaged for $7,000. What rate of return did the company make on this product? (Blank and Tarquin, 6th and 8th edition)
a) Write the ROR equation in the form PW = 0 to determine i* (25 points)
b) Prepare “Year vs. Net Cash Flow” table to find i*. What rate of return did the company make on this product? (Use Spreadsheet to find i*) (25 points)
Solutions
Expert Solution
1
| Property | ||||
| Discount rate | 10.00% | |||
| Year | 0 | 1 | 2 | 3 |
| Cash flow stream | -40000 | -15000 | -15000 | -3000 |
| Discounting factor | 1 | 1.1 | 1.21 | 1.331 |
| Discounted cash flows project | -40000 | -13636 | -12397 | -2253.9 |
| NPV = Sum of discounted cash flows | ||||
| NPV Property = | -68287 | |||
| Where | ||||
| Discounting factor = | (1 + discount rate)^(Corresponding period in years) | |||
| Discounted Cashflow= | Cash flow stream/discounting factor | |||
| Equvalent annuity(EAA)=(AW project C) | -19584 | |||
| Required rate = | 10.00% | |||
| Year | 0 | 1 | 2 | 3 |
| Cash flow stream | -19584 | -19584 | -19584 | -19584 |
| Discounting factor | 1 | 1.1 | 1.21 | 1.331 |
| Discounted cash flows project | -19584 | -17804 | -16185 | -14714 |
| Sum of discounted future cashflows = | -68287 | |||
| Discounting factor = | (1 + discount rate)^(Corresponding period in years) | |||
| Discounted Cashflow= | Cash flow stream/discounting factor | |||
| Discount rate | 10.00% | ||||||
| Year | 0 | 1 | 2 | 3 | 4 | 5 | 6 |
| Cash flow stream | -75000 | -10000 | -10000 | -10000 | -10000 | -10000 | 15000 |
| Discounting factor | 1 | 1.1 | 1.21 | 1.331 | 1.464 | 1.611 | 1.772 |
| Discounted cash flows project | -75000 | -9090.9 | -8264.5 | -7513.1 | -6830.1 | -6209.2 | 8467.11 |
| NPV = Sum of discounted cash flows | |||||||
| NPV Property = | -104441 | ||||||
| Where | |||||||
| Discounting factor = | (1 + discount rate)^(Corresponding period in years) | ||||||
| Discounted Cashflow= | Cash flow stream/discounting factor | ||||||
| Equvalent annuity(EAA)= (AW project D) | -19502 | ||||||
| Required rate = | 10.00% | ||||||
| Year | 0 | 1 | 2 | 3 | 4 | 5 | 6 |
| Cash flow stream | -19502 | -19502 | -19502 | -19502 | -19502 | -19502 | -19502 |
| Discounting factor | 1 | 1.1 | 1.21 | 1.331 | 1.464 | 1.611 | 1.772 |
| Discounted cash flows project | -19502 | -17730 | -16118 | -14652 | -13320 | -12109 | -11009 |
| Sum of discounted future cashflows = | -104441 | ||||||
| Discounting factor = | (1 + discount rate)^(Corresponding period in years) | ||||||
| Discounted Cashflow= | Cash flow stream/discounting factor | ||||||
2)
keosha answered 2 years agoRelated Solutions
The machines shown below are under consideration for an improvement to an automated candy bar wrapping...
The machines shown below are under consideration for an
improvement to an automated candy bar wrapping process.
Machine C
Machine D
First cost, $
–50,000
–65,000
Annual cost, $/year
–10,000
–15,000
Salvage value, $
12,000
25,000
Life, years
4
7
1.) Based on the data provided and using an interest rate of
8% per year, the Capital Recovery “CR” of Machine
C is closest to:
(All the alternatives presented below were calculated using
compound interest factor tables including all decimal...
The machines shown below are under consideration for an improvement to an automated candy bar wrapping...
The machines shown below are under consideration for an
improvement to an automated candy bar wrapping process. Determine
which machine should be selected on the basis of an Annual
Worth Analysis using an interest rate of 8% per
year. (50 points)
Machine C
Machine D
First cost, $
–40,000
–65,000
Annual cost, $/year
–10,000
–12,000
Salvage value, $
12,000
25,000
Life, years
3
6
The machines shown below are under consideration for an improvement to an automated candy bar wrapping...
The machines shown below are under consideration for an
improvement to an automated candy bar wrapping process.
Machine C
Machine D
First cost, $
–40,000
–75,000
Annual cost, $/year
–15,000
–10,000
Salvage value, $
12,000
25,000
Life, years
3
6
(Source: Blank and Tarquin)
Question 1 (10 points)
Based on the data provided and using an interest rate of
5% per year, the correct equation to calculate the
Capital Recovery “CR” of Machine C is:
CRC = –40,000(P/A, 5%, 3)...
Options are under consideration to meet a 12 period need are shown below. Options have different...
Options are under consideration to meet a 12 period need are
shown below. Options have different lives so an adjustment for
equivalence is required to perform a valid analysis using
engineering economic methods. The interest rate for use is
8.0%.
Option
A
B
C
D
Purchase Cost
65,000
41,000
29,000
19,000
First Year Operating Cost
4,800
6,400
7,500
8,100
Operating Cost Increase per Period
500
700
900
1,400
Life/Salvage
6/4,000
4/2,000
3/1,500
2/800
a. What is the PW of Option...
Options are under consideration to meet a 12-period need are shown below. Options have different lives...
Options are under consideration to meet a 12-period need are
shown below. Options have different lives so an adjustment for
equivalence is required to perform a valid analysis using
engineering economic methods. The interest rate for use is
8.0%.
Options
A
B
C
D
Purchase Cost
65,000
41,000
29,000
19,000
First Year Operating Cost
4,800
6,400
7,500
8,100
Operating Cost Increase Per Period
500
700
900
1,400
Life/Salvage
6/4,000
4/2,000
3/1,500
2/800
a. What is the PW of Option A? ...
Kane Candy Company offers a coffee mug as a premium for every ten $1 candy bar...
Kane Candy Company offers a coffee mug as a premium for every
ten $1 candy bar wrappers presented by customers together with $2.
The purchase price of each mug to the company is $1.80; in addition
it costs $1.20 to mail each mug. The results of the premium plan
for the years 2017 and 2018 are as follows (assume all purchases
and sales are for cash):
2017
2018
Coffee mugs purchased
730,000
820,000
Candy bars sold
5,700,000
6,720,000
Wrappers redeemed...
Kane Candy Company offers a coffee mug as a premium for every ten $1 candy bar...
Kane Candy Company offers a coffee mug as a premium for every
ten $1 candy bar wrappers presented by customers together with $2.
The purchase price of each mug to the company is $1.80; in addition
it costs $1.20 to mail each mug. The results of the premium plan
for the years 2017 and 2018 are as follows (assume all purchases
and sales are for cash):
2017
2018
Coffee mugs purchased
730,000
820,000
Candy bars sold
5,700,000
6,720,000
Wrappers redeemed...
The estimates shown are for a bridge under consideration. Use the B/C ration method at an...
The estimates shown are for a bridge under consideration. Use
the B/C ration method at an interest rate of 6% per year to
determine which bridge, if either , should be built.
East Location West Location
Initial Cost, $ 11,000,000 27,000,000
Annual M&O, $/year 100,000 90,000
Benefits $/year 990,000 2,400,000
Disbenefits $/year 120,000 100,000
Life, years infinity infinity
The two ME alternatives shown are under consideration for facility improvements in a company in Abu...
The two ME alternatives shown are under consideration for
facility improvements in a company in Abu Dhabi. Determine which
one should be selected based on a B/C analysis. Assume an interest
rate of 10% per year and a 5-year study period.
Alternative X
Alternative Y
First costs,
AED
40,000
90,000
Annual M&O costs, AED
per year
50,000
20,000
Benefits, AED per
year
120,000
150,000
Disbenefits, AED per
year
30,000
10,000
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d.An external force is required to keep the bar moving at constant
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