Question
In: Accounting
Refer to example 6-3. Re-evaluate the recommended alternative if (a) the MARR= 15% per year; (b)...
Refer to example 6-3. Re-evaluate the recommended alternative if (a) the MARR= 15% per year; (b) the selling price is $0.50 per good unit; and (c) rejected units can be sold as scrap for $0.10 per unit. Evaluate each change individually. (d) What is the recommended alternative if all three of these changes occur simultaneously.
EXAMPLE6-3
| MARR= | 10% | Annual Output Capacity |
120,000 | |
| Useful Life= | Selling Price= | $0.38 | ||
| Expenses | P1 | P2 | P3 | P4 |
| Capital Investment= |
$24,000 | $30,400 | $49,600 | $52,000 |
| Power= | $2,720 | $2,720 | $4,800 | $5,040 |
| Labor= | $26,400 | $24,000 | $16,800 | $14,800 |
| Maintenance= | $1,600 | $1,800 | $2,600 | $2,000 |
| Tax and Insurance= |
$480 | $608 | $992 | $1,040 |
| EOY | P1 | P2 | P3 | P4 |
| 0 | $24,000 | $30,400 | $49,600 | $52,000 |
| 1 | $31,200 | $29,128 | $25,192 | $22,880 |
| 2 | $31,200 | $29,128 | $25,192 | $22,880 |
| 3 | $31,200 | $29,128 | $25,192 | $22,880 |
| 4 | $31,200 | $29,128 | $25,192 | $22,880 |
| 5 | $31,200 | $29,128 | $25,192 | $22,880 |
| PW= | $142,273 | $140,818 | $145,098 | $138,733 |
| AW= | $37,531 | $37,147 | $38,276 | $36,597 |
| FW= | $229,131 | $226,789 | $233,681 | $223,431 |
Solutions
Expert Solution
Current Ranking of the projects are as below based on data provided in the question :
| EOY | P1 | P2 | P3 | P4 |
| PW= | $142,273 | $140,818 | $145,098 | $138,733 |
| AW= | $37,531 | $37,147 | $38,276 | $36,597 |
| FW= | $229,131 | $226,789 | $233,681 | $223,431 |
| PW= Rank | 3 | 2 | 4 | 1 |
| AW= Rank | 3 | 2 | 4 | 1 |
| FW= Rank | 3 | 2 | 4 | 1 |
Since the outgo is least in P4 , as per current position P4 should be selected.
Now (a) If the MRR is changed to 15% :
| EOY | P1 | P2 | P3 | P4 |
| PW= | 128,587 | 128,042 | 134,047 | 128,697 |
| AW= | 38,360 | 38,197 | 39,988 | 38,392 |
| FW= | 258,635 | 257,537 | 269,617 | 258,856 |
| PW= Rank | 2 | 1 | 4 | 3 |
| AW= Rank | 2 | 1 | 4 | 3 |
| FW= Rank | 2 | 1 | 4 | 3 |
After change in MRR to 15% Project 2 becomes preferable.
Workings :
(1) PW ; MARR@15% , Discounting Factor = 1,0.87,0.76,0.66,0.57,0.50 , DF is to be multiplied with annual cash out go then we get PW of 24000,27130,23592,20515,17839,15512 respectively for P1 and thus total PW =128,587. Similarly computed for other altenatives.
(2) AW : MARR@15% ;
e.g. for P1 , AW of initial investment of $1 0.298 so AW for P1 for initial investment $24,000=7160
Total AW = 7160+31200=38,360 (31200 is equal per annum outflows)
(3) FW = future value of all outflows i.e. compounding the amounts @15% MARR.
(b) , (c) Since further information as to sale or production of the units have not been given , there will not be any change on evluation if SP is changed or whther rejected units can be sold at any price. Assuming these parameters same for all 4 alternatives P4 is the answer if these changes occur.
(d) P2 is the answer .
ekkarill92 answered 1 year agoRelated Solutions
A. What is the ERR for this project? Assume that MARR = 15% per year. Is...
A. What is the ERR for this project? Assume that MARR = 15% per
year. Is this project considered to be profitable?
Investment cost
$15,000
Expected life
7 years
Market (salvage)
–$1,500a
Annual receipts
$8,750
Annual expenses
$3,550
a A negative market value means that there is a net
cost to dispose of an asset.
B. What is the discounted payback period?
Determine the best alternative among the options in the table below if the MARR is 6%....
Determine the best alternative among the options in the table
below if the MARR is 6%.
Option
A
B
C
Initial cost
$2500
$4000
$5000
Annual net benefits
$410
$639
$700
n= 20 years.
NPV=
IRR=
NPV
i
A
B
C
0%
1%
2%
3%
4%
5%
6%
7%
8%
9%
10%
11%
12%
13%
14%
15%
16%
17%
18%
19%
20%
21%
22%
23%
24%
25%
a) Using Excel, construct a choice table for interest rates from 0%
to...
1. Evaluate: (a+b)/(c-d) + 9/(a+d) when a=5, b=3, c=8, d=4 a. 6 b. 3 c. 15/2...
1. Evaluate: (a+b)/(c-d) + 9/(a+d) when a=5,
b=3, c=8, d=4
a. 6
b. 3
c. 15/2
d. 17/13
2. Solve for x: 5(x+3) = 35
a. 2
b. 7
c. 4
d. -4
3. Acid rain occurs primarily as a result of
a. operating a nuclear power plant
b. burning coal or oil containing sulfur
c. by-products created by operating an oil refinery
d. the use of Freon and other refrigerants
4. The "ozone holes" at the polar region arise...
At least two alternative investment decisions A and B refer to a ten-year investment horizon. Option...
At least two alternative investment decisions A and B refer to a ten-year investment horizon. Option A has an initial investment cost of 100,000 Euros, annual maintenance costs of 10,000 Euros and expected annual revenue of 25,000 Euros, and there is a resale value of 20,000 Euros at the end of 10 years. Solution B will require an initial investment of 120,000 Euros, will have an annual maintenance cost of 20,000 Euros and an expected annual revenue of 35,000 Euros,...
Problem 15-40 (Algo) Evaluate Profit Impact of Alternative Transfer Decisions (LO 15-2, 3) Amazon Beverages produces...
Problem 15-40 (Algo) Evaluate Profit Impact of Alternative
Transfer Decisions (LO 15-2, 3)
Amazon Beverages produces and bottles a line of soft drinks
using exotic fruits from Latin America and Asia. The manufacturing
process entails mixing and adding juices and coloring ingredients
at the bottling plant, which is a part of Mixing Division. The
finished product is packaged in a company-produced glass bottle and
packed in cases of 24 bottles each.
Because the appearance of the bottle heavily influences sales...
Consider three alternatives, each with a 10-year useful life. If the MARR is 10%, which alternative...
Consider three alternatives, each with
a 10-year useful life. If the MARR is 10%, which alternative should
be selected? Solve the problem by benefit-cost analysis.
Alt
Alt B
Alt C
Cost
$800
$300
$150
Uniform Annual Benefit
$142
$60
$33.50
Consider the mutually exclusive alternatives given in the table below. MARR is 5 % per year....
Consider the mutually exclusive alternatives given in the table
below. MARR is 5 % per year. Assuming repeatability, what is the
equivalent annual worth of the most profitable alternative? (Do not
enter the dollar sign $ with your answer.)
_____________________________________________________________
X Y Z
_____________________________________________________________
Capital
investment $50,000
$25,000
$40,000
Annual
savings $15,000
$8,000
$12,000
Useful
life
(years) 10 15
20
_____________________________________________________________________________
To recover your investment and earn a MARR of 10% per year, how long will you...
To recover your investment and earn a MARR of 10% per year, how
long will you have to own a business that costs $230,000 to setup,
generates $50,000 per year in income and has $15,000 per year in
expenses ?
B. There is a 30 year bond, which pays 6% per annum at the time that...
B.
There is a 30 year bond, which pays 6% per annum at the time that
required rates are10%. We buy with the intention of selling it in 4
years at which time the required rate is 6%. How much do we sell it
in 4 years, and how much do we buy it now?
Compare the 2 sytems at MARR = 10% per year by using tabulated factors. What system...
Compare the 2 sytems at MARR = 10% per year by using tabulated
factors. What system costs less over the span of 8 years.
Pull System
Push System
Robot and Support equipement first cost, ($)
-1,500,000
-2,250,000
Annual M&O cost, ($ per year)
-700,000
-600,000
Rebuild cost in year 3, ($)
0
-500,000
Salvage Value, ($)
100,000
50,000
Estimated life, (years)
8
8
ADVERTISEMENT
ADVERTISEMENT
Latest Questions
- Do you agree that Social Loafing is similar to Theory X. Give an example to support...
- Computing Cost of Goods Sold and Ending Inventory. Bartov Corporation reports the following beginning inventory and...
- SQL FORMAT (11-13 are completed and correct) -- 11. what are the names of all students...
- You have been hired as a capital budgeting analyst by Advent Sports, a sporting goods firm...
- DESCRIBE WHAT HAPPENS WHEN WE BECOME CONSCIOUS OF SOMETHING. WHAT HAS TO HAPPEN FOR CONSCIOUS AWARENESS...
- 3) You are rolling a 12 sided die 8 times. a) What is the size for...
- explain the difference between quantitative and qualitative research strategies. Provide an example of a crime based...
ADVERTISEMENT