Conclusion: Choose B. An incremental Uniform Annual Benefit becomes a cost rather than a benefit. Reject D. Conclusion: Select C.
Reject E. Similarly, D, with greater benefits and identical cost, is preferred over B. Hence B may be rejected. On this basis C may be rejected. Therefore, do A. Alternative A may be considered if the investor is very short of cash and the short payback period is of importance to him.
The Present Worth method requires common analysis period, which is virtually impossible for this problem. The problem is easy to solve by Annual Cash Flow Analysis. In future worth analysis there must be a common future time for all calculations. In this case 12 years hence is a practical future time. C Alt. Increment B- C Year Alt. B Alt. Solutions for part b : Choose Alternative C. Thus each generates uniform annual benefits in excess of the cost, during the life of the alternative.
From this is must follow that the alternative with a 2-year life has a payback period less than 2 years. The alternative with a 4-year life has a payback period less than 4 years, and the alternative with a 6-year life has a payback period less than 6 years.
Thus we see that the shorter-lived asset automatically has an advantage over longer-lived alternatives in a situation like this. While Alternative A takes the shortest amount of time to recover its investment, Alternative C is best for long- term economic efficiency.
The problem may be solved by inspection. Alternative z dominates Alternative y. Alternative z has a positive rate of return actually Choose Alternative z. To maximize NFW, select F. To minimize payback period, select F. Here, however, we will include it. Chapter Uncertainty in Future Events a Some reasons why a pole might be removed from useful service: 1. The pole has deteriorated and can no longer perform its function of safely supporting the telephone lines 2.
The telephone lines are removed from the pole and put underground. The poles, no longer being needed, are removed. Poles are destroyed by damage from fire, automobiles, etc. The street is widened and the pole no longer is in a suitable street location.
The pole is where someone wants to construct a driveway. Typical values for Pacific Telephone Co. The salvage value drops by 5x8,x. The salvage value increases by 5x8,x. So the total probability of higher rates for year 2 is. An inspection of the Regular Season situation reveals that the sum of the probabilities for the outcomes enumerated is 0. Thus one outcome win less than three games , with probability 0. This is not a faulty problem statement.
The student is expected to observe this difficulty. Die 1 Die 2 2 6 3 5 4 4 5 3 6 2 The five ways of throwing an 8 have equal probability of 0. The probability of winning is 0. Here it is ignored. Remember, only the differences between alternatives are relevant.
In any year period, for example, there are 4 chances in 10 that a year flood or greater will occur. Using a probabilistic approach, however, Alternative I is most likely to result in the least equivalent uniform annual cost. The P loss is unchanged at. For example, the first and second rows' PWs are unchanged.
The probability of a negative PW is. This illustrates why standard deviation alone is not the best measure of risk. The standard deviation is higher, but the P loss has dropped by half. One can also see this by inspection of the depreciation schedules above. Cost of Proceeds Undep. This is not a correct analysis of the situation. This may be illustrated by computing the Straight Line depreciation for Year 3, if DDB depreciation had been used in the prior years.
One would naturally choose to continue with DDB depreciation. While the depreciation charges in any year may be different for different methods, the sum of the depreciation charges will be the same. The difference is not the amount of the taxes, but their timing. XYZ, Inc. Further calculations show actual rate of return to be approximately 4.
It does change the timing of these items. Calculator solution is Therefore the project should not be undertaken. The cash investment is greatly reduced. Since the truck rate of return Two items worth noting: 1. The truck and the loan are independent decisions and probably should be examined separately. There is increased risk when investments are leveraged.
Choose Alternative 1. Choose B. By NPW one can see that A is the better of the two undesirable alternatives. Select Alternative A. Chapter eplacement nalysis For the Replacement Analysis Decision Map, the appropriate analysis method is a function of the cash flows and assumptions made regarding the defender and challenger assets. Thus, the answer would be the last it depends on the data and the assumptions The replacement decision is a function of both the defender and the challenger.
The statement is false. This is such a common situation that the early versions of the MAPI replacement analysis model were based on a one year remaining life for the defender. The answer is one year. The EUAC of maintenance is constant. Thus total EUAC is declining over time. The book indicates that trade-in value may be purposely inflated as a selling strategy, hence it may or may not represent market value. Retraining in operation and maintenance may be required.
High comfort of operation. High purchase price. May not be immediately available. Sales taxes to be paid. Can be depreciated. Supplier warranty and spare parts backup available. No sales tax applies. Retraining in operation and maintenance is not required. Production will be lost during the rebuilding period. Cost may be substantially lower than in previous options.
The rebuild costs can be expensed. Retraining in operation and maintenance may be required if the new unit is different from the previous one. Immediate delivery is a possibility. The sales tax applies. Equipment can be depreciated.
This would lead to the use of Replacement Analysis Technique 2. We chose the options with the smallest EUAC. If the challenger is superior, then the defender tank probably will be replaced. It will cost a substantial amount of money to remove the existing tank from the plant, sell it to someone else, and then buy and install another one.
As a practical matter, it seems unlikely that this will be economical. The best useful life will be the one in which EUAC is a minimum. Year Reconditioned New New vs. The Thus we use Replacement Analysis Technique 1 and compare the marginal cost data of the defender against the min.
EUAC of the challenger. EUAC at its 5-year life. This is because after three years the marginal costs of the Defender become greater than the min. EUAC of the Challenger. Thus, we use Replacement Analysis Technique 1 and compare the marginal cost data of the defender against the min.
We would keep the defender asset for two more years and then replace it with the new automated shearing equipment. From Figure the marginal cost data is available, and it is not strictly increasing see Total MC column in the table below.
Thus, we recommend keeping the defender for at least one more year and reviewing the data for changes. Here we are comparing the min. EUAC def vs. This is because the min. The problem says the challenger economic life is 10 years. Using the data provided this fact could be verified, but that is not part of the problem. Keep the old forklift another year. A first step is to compute an after-tax cash flow for each alternative. Choose Alternative C. Conclusion: Choose Alternative C.
Keep Machine A. In this way the currency itself is less valuable on a per unit basis. These are the dollars that we carry around in our wallets and purses, and have in our savings accounts. Real dollars are expressed as of purchasing power base, such as Yearbased-dollars.
The inflation rate captures the loss in purchasing power of money in a percentage rate form. The market interest rate, also called the combined rate, combines the inflation and real rates into a single rate.
Dollars, and interest rates, are used in engineering economic analyses to evaluate projects. As such, the purchasing power of dollars, and the effects of inflation on interest rates, are important. The important principle in considering effects of inflation is not to mix-and-match dollars and interest rates that include, or do not include, the effect of inflation.
A constant dollar analysis uses real dollars and a real interest rate, a then-current or actual dollar analysis uses actual dollars and a market interest rate. In much of this book actual dollars cash flows are used along with a market interest rate to evaluate projects this is an example of the later type of analysis.
The goods included in this index are those commonly purchased by consumers in the US economy e. Composite indexes measure a collection of items that are related. The PPI measures the cost to produce goods and services by companies in our economy items in the PPI include materials, wages, overhead, etc.
Both commodity specific and composite indexes can be used in engineering economic analyses. Their use depends on how the index is being used to measure or predict cash flows. If, in the analysis, we are interested in estimating the labor costs of a new production process, we would use a specific labor cost commodity index to develop the estimate. Much along the same lines, if we wanted to know the cost of treated lumber 5 years from today, we might use a commodity index that tracks costs of treated lumber.
Allowable depreciation charges are based on the original equipment cost and do not increase. Thus the stable price assumption may be suitable in some before-tax computations, but is not satisfactory where depreciation affects the income tax computations. So purchase pads of paper- one for immediate use plus 4 extra pads.
Whether one will profit from owning the house depends somewhat on an examination of the alternate use of the money. Only the differences between alternatives are relevant. Find i'.
This problem illustrates the fact that the prospect of future inflation encourages current expenditures to be able to avoid higher future expenditures. This is the year of which the index has a value of One simple rule might involve using the average of the last 5 years inflation rates.
This rate would be 1. If the money available from depreciation charges is inadequate to purchase needed replacement equipment, then the firm may need also to use after-tax profit for this purpose. Depreciation charges produce a tax-free source of money; profit has been subjected to income taxes. Thus substantial inflation forces a firm to increasingly finance replacement equipment out of costly after-tax profit.
Stated in Year 0 dollars, the total receipts are less than the cost, hence there is no positive rate of return. Choose the higher cost alternative: choose Alternative A. Chapter Selection of a Minimum ttractive ate of eturn The interest rates on these securities vary greatly over time, making it impossible to predict rates.
Three factors that distinguish the securities: Bond Duration Bond Safety Municipal Bond 20 years Safe Corporate Bond 20 years Less Safe The importance of the non-taxable income feature usually makes the municipal bond the one with the lowest interest rate. The corporate bond generally will have the highest interest rate. C is preferred for 4. Leasing is therefore preferred at all interest rates above One can make more than One does not have to be concerned about the resale value of the car at the end of two years.
Plants include: Camomile Ivy Hobbit finger jade Peperomia Red nerve plant Fishbone prayer plant water Hawaiian ti plant Two pots and a vase Eco oil user once and eco been oil just over half full. Indoor plant fertaliser is about half full. Wanted: Wanted original hills hoist. Ideally around the Launceston area. TV Entertainment Unit. Wanted: Wanted Liberty of London furnishing fabric.
Wanted, Liberty of London furnishing fabric, happy to pay postage. Concrete wagon wheel, pot, stepping stone. Handmade concrete wagon wheel. Industrial look fan. Fisher and Parker washing machine.
In good working order, only selling due to buying larger front loader, great for person house hold. This listing is for the 2 bedsides. These pieces have been sanded back with the original tops kept in their natural wood state, sealed with an oil based top coat. The bodies have been painted using a soft white chalk and clay paint, with beautiful French couture designs of the front to give them a unique look. Finished with crystal handles. Sandstone Flagstones.
Wanted to buy Meyer Lemon Trees. Hey there, I'm wanting to buy a couple of Meyer lemon trees to grow in some large pots. Ideally I'd like them to be quite established. I can pick these up from anywhere in Tasmania. Please let me know what you've got! Wanting approximately Drop saw. Drop saw with guard, dust bag, clamp. Several designs and colours. Also 2 black exposed aggregate planters xmm. Vintage Dinner or Drinks Trolley. This is a vintage dinner or drinks trolley, probably blackwood, with castor wheels.
It is very convenient for serving drinks from, or afternoon tea or meals. It would also be nice as a display table. The tray is removable and can be used just as a tray.
Please contact me to view in East Launceston. Glass dining table and 4 chairs. They are numbered and in excellent condition. Approximately 15cm high. Vintage mother goose. Vintage Mother Goose, approximately 39cm high.
In good condition, has a small chip on the hat. See the photo. Pick up only at Margate. Large vintage Crystal vase. Large vintage Crystal vase, approximately 26cm high. Mini flask, including funnel. Mini Flack, includes funnel and it has ml capacity. Hinged cap and stainless steel.
Set of 3 hand painted cow money boxes. In good condition , varied heights. Waterford Snowflake Wishes Xmas decorations. Waterford Snowflake Wishes limited edition, still in boxes and in excellent condition. Lead crystal made in Slovenia. Negotiable for multiple buyer's. Also have numbers on the boxes. Each one has a beautiful decorative hook that attaches to the Snowflake.
There is also a year on each one , to Free shelving. Plastic draws slide out and reposition. Good for Shed or somthin. Cosmos figurine. Cosmos figurine of Children and puppies. Approximately 16cm high. Cloisonne vase. Cloisonne vase approximately 16cm high. Pickup at Margate or postage available at buyer's expense. Simpsons collectable figurines, original rages 43 in total. Will not separate and 20 years old, only been on display.
Various heights approximately 9cm. Small deep fryer. Japanese carved antique round table.
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