1. A company that manufactures magnetic membrane switches is investigating two production options that have the estimated cash flows shown ($1 million units). Which one should be selected on the basis of a present worth analysis at 10% per year?
|
|
In-house
|
Contract
|
|
First cost, $
|
-30
|
0
|
|
Annual cost, $ per year
|
-5
|
-2
|
|
Annual income, $ per year
|
14
|
3.1
|
|
Salvage value, $
|
2
|
-
|
|
Life, years
|
5
|
5
|
2. Anion, an environmental engineering consulting firm, is trying to be eco-friendly in acquiring an automobile for general office use. It is considering a gasoline-electric hybrid and a gasoline-free all-electric hatchback. The hybrid under consideration is GM's Volt, which will cost $35,000 and have a range of 40 miles on the electric battery and several hundred more miles when the gasoline engine kicks in. Nissan's Leaf, on the other hand, is a pure electric that will have a range of only 100 miles, after which its lithium-ion battery will have to be recharged.
The Leaf's relatively limited range creates a psychological effect known as range anxiety. This fact alone has caused the company to lean toward purchasing the Volt, which is assumed to have a salvage value of $15,000 in 5 years. The Leaf could be leased for $349 per month (end-of-month payments) for 5 years after an initial $1500 down payment for "account activation." If the consulting company plans to ignore the range anxiety effect in making its decision, which automobile is the better option on the basis of a present worth analysis at an interest rate of 0.75% per month? Assume the operating cost will be the same for both vehicles.
3. A chemical processing corporation is considering three methods to dispose of a non-hazardous chemical sludge: land application, fluidized-bed incineration, and private disposal contract. The estimates for each method are shown. Determine which has the least cost on the basis of a present worth comparison at 10% per year for the following scenarios:
(a) The estimates as shown
(b) The contract award cost increases by 20% every 2-year renewal
|
|
Land Application
|
Incineration
|
Contract
|
|
First cost, $
Annual operating cost, $ per year
|
-130,000
-95,000
|
-900,000
-60,000
|
0
-120,000
|
4. The Murphy County Fire Department is considering two options for upgrading its aging physical facilities. Plan A involves remodeling the fire stations on Alameda Avenue and Trowbridge Boulevard that are 57 and 61 years old, respectively. (The industry standard is about 50 years of use for a station.) The cost for remodeling the Alameda station is estimated at $952,000 while the cost of redoing the Trowbridge station is $1.3 million. Plan B calls for buying 5 acres of land somewhere between the two stations, building a new fire station, and selling the land and structures at the previous sites.
The cost of land in that area is estimated to be $366,000 per acre. The size of the new fire station would be 9000 square feet with a construction cost of $151.18 per square foot. Contractor fees for overhead, profit, etc. are expected to be $340,000, and architect fees will be $81,500. (Assume all of the costs for plan B occur at time 0.)
If plan A is adopted, the extra cost for personnel and equipment will be $126,000 per year. Under plan B, the sale of the old sites is anticipated to net a positive $500,000 five years in the future. Use an interest rate of 6% per year and a 50- year useful life for the remodeled and new stations to determine which plan is better on the basis of a present worth analysis.
5 Midwest Power and Light operates 14 coal-fired power plants in several states around the United States. The company recently settled a lawsuit by agreeing to pay $60 million in mitigation costs related to acid rain. The settlement included $21 million to reduce emissions from barges and trucks in the Ohio River Valley, $24 million for projects to conserve energy and produce alternative energy, $3 million for Chesapeake Bay, $2 million for Shenandoah National Park, and $10 million to acquire ecologically sensitive lands in Appalachia.
The question of how to distribute the money over time has been posed. Plan A involves spending $5 million now and the remaining $55 million equally over a 10-year period (that is, $5.5 million in each of years 1 through 10). Plan B requires expenditures of $5 million now, $25 million 2 years from now, and $30 million 7 years from now.
Determine which plan is more economical on the basis of a present worth analysis over a 10-year period at an interest rate of 10% per year.
6. Compare the alternatives shown below on the basis of a future worth analysis, using an interest rate of 8% per year.
|
First cost, $
Annual operating cost, $ per year
Salvage value, $
Life, years
|
-23,000
-4,000
3,000
3
|
-30,000
-2,500
1,000
6
|
7. Find the capitalized cost of a present cost of $300,000, annual costs of $35,000, and periodic costs every 5 years of $75,000. Use an interest rate of 12% per year.
8. The present worth of $50,000 now, $10,000 per year in years 1 through 15, and $20,000 per year in years 16 through infinity at 10% per year is closest to:
(a) Less than $-169,000
(b) $ -169,580
(c) $-173,940
(d) $-195,730
Only draw the cash diagram