Question

In: Economics

Please show all the steps you've done to reach the final answer. I am trying to...

Please show all the steps you've done to reach the final answer. I am trying to learn, so please show your work. Typing your answer is important.

1) The CFO of a consulting engineering firm is deciding between purchasing Ford Explorers and Toyota 4Runners for company principals. The purchase price for the Ford Explorer will be $30,750. Annual maintenance costs for the Explorer are expected to be $575 per year more than that of the 4Runner. The purchase price for Toyota 4Runners is 35,250 The trade-in values after 3 years are estimated to be 50% of the first cost for the Explorer and 60% for the 4Runner. (a) What is the incremental ROR between the two vehicles? (b) Provided the firm’s MARR is 15% per year, which vehicle should it buy?

Solutions

Expert Solution

In the incremental IRR analysis we find incremental cash flows by deudcting lower first cost project from higher first cost project


Negative convetion is for Cash outflow such as difference in cash flow is if negative.

We have alternatives 'Toyota 4 runner" and "Ford Explorer"out of which Toyota 4 runner have higher initial cost

Now we can Fill the blanks

Resale Value for Toyota=35250*0.6=21150
Resale Value for Ford = 30750*0.5=15375


Process   Toyota Ford Incremental Cash flow
First Cost -35250 -30750 -4500
M&O $/year -x -(575+x) 575
Resale Value 21150 15375 5725
Life, Years 3   3

i% is incremental RoR

We then have Present worth of negative incremental Cash flow equals to Present worth of positive incremental cash flow

0=-4500+575(P/A,i%,3)+5775(P/F,i%,3)

4500=575(P/A,i%,3)+5775(P/F,i%,3)

we get using IRR function from excel that i%=20.53% that is higher than MARR

therefore we can say that preferring higher initial cost project over lower initial cost project is beneficial because incremental RoR (i)>MARR

Therefore Toyota 4 runner should be bought


Related Solutions

Please show all the steps you've done to reach the final answer. I am trying to...
Please show all the steps you've done to reach the final answer. I am trying to learn, so please show your work. Typing your answer is important. 1) Find the present worth of earthmoving equipment that has a first cost today of $149,000, an annual operating cost of $65,000, and a salvage value of 20% of the first cost after 5 years, these estimates being in future dollars. Assume that the real interest rate is 8% per year and that...
Please show all the steps you've done to reach the final answer. I am trying to...
Please show all the steps you've done to reach the final answer. I am trying to learn, so please show your work. Typing your answer is important. Parker Hannifin of Cleveland, Ohio, manufactures CNG fuel dispensers. It needs replacement equipment to streamline one of its production lines for a new contract, but it plans to sell the equipment at or before its expected life is reached at an estimated market value for used equipment. Select between the two options using...
Please show all the steps you've done to reach the final answer. I am trying to...
Please show all the steps you've done to reach the final answer. I am trying to learn, so please show your work. Typing your answer is important. 1) There are two potential locations to construct an urgent care walk-in clinic to serve rural residents. Use B/C analysis to determine which location, if any, is better at an interest rate of 8% per year. Location 1 2 Initial Cost, $ 1,200,000 2,000,000 Annual M&O Cost, $/Year 80,000 75,000 Annual Benefits, $/Year...
Please show all the steps you've done to reach the final answer. I am trying to...
Please show all the steps you've done to reach the final answer. I am trying to learn, so please show your work. Typing your answer is important. 1) Certain parts for NASA’s reusable space exploration vehicle can be either anodized (A) or powder coated (P). Some of the costs for each process are shown in the table below. The incremental cash flow future worth equation associated with (P-A) is 0 = -53,000(F/P,Δi*P−A,5) + 21,000(F/A,Δi*P−A,5) + 8000 Please provide the answers...
Please show all the steps you've done to reach the final answer. I am trying to...
Please show all the steps you've done to reach the final answer. I am trying to learn, so please show your work. Typing your answer is important. A) How much must you deposit each year into your retirement account starting now and continuing through year 8 if you want to be able to withdraw $80,000 per year forever, beginning 29 years from now? Assume the account earns interest at 13% per year. B). If a manufacturer of electronic devices invests...
Please show all the steps you've done to reach the final answer. I am trying to...
Please show all the steps you've done to reach the final answer. I am trying to learn, so please show your work. Typing your answer is important. A) White Oaks Properties builds strip shopping centers and small malls. The company plans to replace its refrigeration, cooking, and HVAC equipment with newer models in one entire center built 12 years ago. 12 years ago, the original purchase price of the equipment was $800,000 and the operating cost has averaged $290,000 per...
Must show all needed steps in getting to your final answer. And, express your final answer...
Must show all needed steps in getting to your final answer. And, express your final answer as a decimal. Show every step NEATLY please NEATLY AND VERY CLEAR AND READABLE PLEASE TYPE ANSWER AND WORK NEATLY AND VERY CLEAR AND READABLE PLEASE TYPE ANSWER AND WORK Part 1) Suppose that you are planning to travel a certain air route via plane once each week for your new job. Also, assume that there is a 3% chance that your outbound flight...
Please answer all parts of the question. Please show all work and all steps. 1a.) Show...
Please answer all parts of the question. Please show all work and all steps. 1a.) Show that the solutions of x' = arc tan (x) + t cannot have maxima 1b.) Find the value of a such that the existence and uniqueness theorem applies to the ivp x' = (3/2)((|x|)^(1/3)), x(0) = a. 1c.) Find the limits, as t approaches both positive infinity and negative infinity, of the solution Φ(t) of the ivp x' = (x+2)(1-x^4), x(0) = 0
Please show how you got the answer. I am trying to learn! Drilling Experts, Inc. Drilling...
Please show how you got the answer. I am trying to learn! Drilling Experts, Inc. Drilling Experts, Inc. (DEI) finds and develops oil properties and then sells the successful ones to major oil refining companies. DEI is now considering a new potential field, and its geologists have developed the following data, in thousands of dollars. t = 0. A $400 feasibility study would be conducted at t = 0. The results of this study would determine if the company should...
I am trying to start saving for retirement. I am investing all my cash into the...
I am trying to start saving for retirement. I am investing all my cash into the S&P 500, which will assume consistently 9.8% interest, compounded annually. I initially put a lump sum of $100 into my account, and I will deposit $10 every second week. a) After 10 years, how much money will I have invested? b) After 10 years, if I sold all of my stocks, how much money will I have in my account? c) After 25 years,...
ADVERTISEMENT
ADVERTISEMENT
ADVERTISEMENT