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Engineering Economics Analysis 9th Edition Ted G. Feller - Solutions
In Problem 10-24, how much is it worth to the firm to be able to extend the product’s life by 3 Years, at a cost of $50,000, at the end of the product’s initial useful life?
Al took a midterm examination in physics and received a score of 65. The mean was 60 and the standard deviation was 20. Bill received a score of 14 in mathematics, where the exam mean was 12 and the standard deviation was 4. Which student ranked higher in his class? Explain.
The Graham Telephone Company may invest in new switching equipment. There are three possible outcomes, having net present worth of $6570, $8590, and $9730. The probability of each outcome is 0.3, 0.5, and 0.2, respectively. Calculate the expected return and risk associated with this proposal.
A new machine will cost $25,000. The machine is expected to last 4 years and has no salvage value. If the interest rate is 12%, determine the return and the risk associated with the purchase.
What is your risk associated with Problem 10-14?
Measure the risk for Problem 10-19 using the P(loss), range of PW values, and standard deviation of the PWs.
(a) In Problem 10-24, describe the risk using the P (1oss) and standard deviation of the PWs. .(b) How much do the answers change if the possible life extension in Problem 10-25 is allowed?
An engineer decided to make a careful analysis of the cost of fire insurance for his $200,000 home. From a fire rating bureau he found the following risk of fire loss in any year.Outcome ProbabilityNo fire
A firm wants to select one new research and development project. The following table summarizes six possibilities. Considering expected return and risk, which projects are good candidates? The firm believes it can earn 5% on a risk-free investment in government securities (labeled as Project F).
A firm is choosing a new product. The following table summarizes six new potential products. Considering expected return and risk, which products are good candidates? The firm believes it can earn 4% on a risk-free investment in government securities (labeled as Product F).
A depreciable asset costs $10,000 and has an estimated salvage value of $1600 at the end of its 6-year depreciable life. Compute the depreciation schedule for this asset by both SOYD depreciation and DDB depreciation.
A million-dollar oil drilling rig has a 6-year depreciable life and a $75,000 salvage value at the end of that time. Determine which one of the following methods provides the preferred depreciation schedule: DDB or SOYD. Show the depreciation schedule for the preferred method.
A new machine tool is being purchased for $16,000 and is expected to have a zero salvage value at the end of its 5-year useful life. Compute the DDB depreciation schedule for this capital asset. Assume any remaining depreciation is claimed in the last year.
Some special handling devices can be obtained for $12,000. At the end of 4 years, they can be sold for $600. Compute the depreciation schedule for the devices using the following methods:(a) Straight-line depreciation.(b) Sum-of-years' -digits depreciation.(c) Double declining balance
The company treasurer is uncertain which of four depreciation methods the firm should use for office furniture that costs $50,000, and has a zero salvage value at the end of a 10-year-depreciable life. Compute the depreciation schedule for the office furniture using the methods listed:(a) Straight
The RX Drug Company has just purchased a capsulation machine for $76,000. The plant engineer estimates the machine has a useful life of 5 years and little or no salvage value. He will use zero salvage value in the computations. Compute the depreciation schedule for the machine using:(a)
The Acme Chemical Company purchased $45,000 of research equipment, which it believes will have zero salvage value at the end of its 5-year life. Compute the depreciation schedule for the equipment by each of the following methods:(a) Straight line.(b) Sum-of-years'-digits.(c) Double declining
Consider a $6500 piece of machinery, with a 5-year depreciable life and an estimated $1200 salvage value. The projected utilization of the machinery when it was purchased, and its actual production to date are shown below.Compute the machinery depreciation schedule by each of the following
A large profitable corporation purchased a small jet plane for use by the firm's executives in January. The plane cost $1.5 million and, for depreciation purposes, is assumed to have a zero salvage value at the end of 5 years. Compute the MACRS depreciation schedule.
For an asset that fits into the MACRS "All property not assigned to another class" designation, show in a table the depreciation and book value over the asset's l0-year life of use. The cost basis of the asset is $10,000.
A company that manufactures food and beverages in the vending industry has purchased some handling equipment that cost $75,000 and will be depreciated using MACRS GDS. The class life of the asset is 4 years, show in a table the yearly depreciation amount and book value of the asset over its
Consider five depreciation schedules:They are based on the same initial cost, useful life, and salvage value. Identify each schedule as one of the following Straight-line depreciation. .Sum-of-years' -digits depreciation 150% declining balance depreciation Double declining balance depreciation
The depreciation schedule for an asset, with a salvage value of $90 at the end of the recovery period, has been computed by several methods. Identify the depreciation method used for each schedule.Year A
The depreciation schedule for a microcomputer has been arrived at by several methods. The estimated salvage value of the equipment at the end of its 6-year useful life is $600. Identify the resulting depreciation schedules.
TELCO Corp has leased some industrial land near its plant. It is building a small warehouse on the site at a cost of $250,000. The building will be ready for use January 1. The lease will expire 15 years after the building is occupied. The warehouse will belong at that time to the landowner, with
A profitable company making earthmoving equipment is considering an investment of $100,000 on equipment that will have 5-year useful life and a $20,000 salvage value. If money is worth 10%, which one of the following three methods of depreciation would be preferable?(a) Straight-line method.(b)
The White Swan Talc Company purchased $120,000 of mining equipment for a small talc mine. The mining engineer's report indicates the mine contains 40,000 cubic meters of commercial quality talc. The company plans to mine all the talc in the next 5 years as follows:Year
For its fabricated metal products, the Able Corp. is buying $10,000 of special tools that have a 4-year useful life and no salvage value. Compute the depreciation charge for the second year by each of the following methods:(a) DDB.(b) Sum-of -years' -digits.(c) Modified accelerated cost recovery
Use MACRS GDS depreciation for each of the assets, 1-3, to calculate the following items, (a)-(c).1. A light general-purpose truck used by a delivery business, cost = $17,000.?2. Production equipment used by a Detroit automaker to produce vehicles, cost = $30,000.3. Cement production facilities
On July 1 Nancy Regan paid $600,000 for commercial building and an additional $150,000 for the land on which it stands. Four years later, also on July 1, s be sold the property for $850,000. Compute the modified accelerated cost recovery system depreciation for each of the five calendar years
A group of investors has formed Trump Corporation to purchase a small hotel. The asking price is $150,000 for the land and $850,000 for the hotel building if the purchase takes place in June, compute the MACRS depreciation for the first three calendar years. Then assume the hotel is sold in June of
A company is considering buying a new piece of machinery. A 10% interest rate will be used in the computations. Two models of the machine are available.(a) Determine which machine should be purchased, based on equivalent uniform annual cost.(b) What is the capitalized cost of Machine I?(c) Machine
Equipment costing $20,000 that is a MACRS 3-year property is disposed of during the second year for $14,000. Calculate any depreciation recapture, ordinary losses, or capital gains associated with disposal of the equipment.
An asset with a 8-year ADR class life costs $50,000 and was purchased on January I, 2001. Calculate any depreciation recapture, ordinary losses, or capital gains associated with selling the equipment on December 31, 2003, for $15,000, $25,000, and $60,000. Consider two cases of depreciation for the
When a major highway was to be constructed nearby, a farmer realized that a dry streambed running through his property might a valuable source of sand and gravel. He shipped samples to a testing laboratory and learned that the material met the requirements for certain low-grade fill material. The
Mr. H. Salt purchased a 1/8 interest in a producing oil well for $45,000. Recoverable oil reserves for the well were estimated at that time at 15,000 barrels 1/8 of which represented Mr. Salt's share of the reserves. During the subsequent year, Mr. Salt received $12,000 as his 1/8 share of the
A heavy construction firm has been awarded a contract to build a large concrete dam. It is expected that a total of 8 years will be required to complete the work. The firm will buy $600,000 worth of special equipment for the job. During the preparation of the job cost estimate, the following
Some equipment costs $1000, has a 5-year depreciable life, and an estimated $50 salvage value at the end of that time. You have been assigned the problem to determine whether to use straight-line or SOYD depreciation. If a 10% interest rate is appropriate, which is the preferred depreciation method
The FOURX Corp has purchased $12,000 of experimental equipment. The anticipated salvage value is ~ $400 at the end of its 5-year depreciable life. This profitable corporation is considering two methods of depreciation: sum of years' digits and double declining balance. If it uses 7% interest in its
Office equipment whose initial cost is $100,000 has an estimated actual life of 6 years, with an estimated salvage value of $10,000. Prepare tables listing the annual costs of depreciation and the book value at the end of each 6 years, based on the straight-line, sum-of-years' -digits, and MACRS
You are equipping an office. The total office equipment will have a first cost of $1, 75,000 and a salvage value of $200,000. You expect the equipment will last 10 years. Use a spreadsheet function to compute the MACRS depreciation schedule.
These can be solved by hand, but most will be solved much more easily with a spreadsheet An unmarried taxpayer with no dependents expects an adjusted gross income of $48,000 in a given year. His non-business deductions are expected to be $3400.(a) What will his federal income tax be?(b) He is
John Adams has a $50,000 adjusted gross income from Apple Corp. and allowable itemized deductions of $5000. Mary Eve has a $45,000 adjusted gross in come and $2000 of allowable itemized deductions. Compute the total tax they would pay as unmarried individuals. Then compute their tax as a married
Bill Jackson worked during school and during the first 2 months of pis summer vacation. After factoring in his deductions and personal exemption as a single man, Bill found that he had a total taxable income of $1800. Bill's employer wants him to work another month during the summer, but Bill had
A married couple filing jointly has a combined total adjusted gross income of $75,000. They have computed that their allowable itemized deductions are $4000. Compute their federal income tax.
Jane Shay operates a management consulting business. The business has been successful and now produces a taxable income of $65,000 per year after all "ordinary and necessary" expenses and depreciation has been deducted. At present the business is operated as a proprietorship; that is, Jane pays
Bill Alexander and his wife Valerie are both employed. Bill will have an adjusted gross income this year of $70,000. Valerie has an adjusted gross income of $2000 a month. Bill and Valerie have agreed that Valerie should continue working only until the federal income tax on their joint income tax
A company wants to set up a new office in a country where the corporate tax rate is as follows: 15% of first $50,000 profits, 25% of next $25,000, 34% of next $25,000, and 39% of everything over $100,000. Executives estimate that they will have gross revenues of $500,000, total costs of $300,000,
ARKO oil company purchased two large compressors for $125,000 each. One compressor was installed in the firm's Texas refinery and is being depreciated by MACRS depreciation. The other compressor was placed in the Oklahoma refinery, where it is being depreciated by sum-of-years' -digits depreciation
Sole Brother Inc. is a shoe outlet to a major shoe manufacturing industry located in Chicago. Sole Brother Uses accounts payable as one of its financing sources. Shoes are delivered to Sole Brother with a 3% discount if payment on the invoice is received within 10 days of delivery. By paying after
To increase its market share, Sole Brother Inc. decided to borrow $5000 from its banker for the purchase of newspaper advertising for its shoe retail line. The loan is to be paid in four equal annual payments with 15% interest. The loan is discounted 6 points. The 6 "points" is an additional
A major industrialized state has a state corporate tax rate of 9.6% of taxable income. If a corporation has a state taxable income of $150,000, what is the total state and federal income tax it must pay? Also, compute its combined incremental state and federal income tax rate.
An unmarried individual in California with a taxable income of about $80,000 has a federal incremental tax rate of 30% and a state incremental tax rate of 9.3%. What is his combined incremental tax rate?
The Lynch Bull investment company suggests that Steven Comstock, a wealthy New York City investor (his incremental income tax rate is 38.6%), consider the following investment. Buy corporate bonds on the New York Stock Exchange with a face value (par value) of $100,000 and a 5% coupon rate (the
Albert Chan decided to buy an old duplex as an investment. After looking for several months, he found a desirable duplex that could be bought for $93,000 cash. He decided that he would rent both sides of the duplex, and determined that the total expected income would be $800 per month. The total
Zeon, a large, profitable corporation, is considering adding some automatic equipment to its production facilities. An investment of $120,000 will produce an initial annual benefit of $29,000, but the benefits are expected to decline $3000 per year, making second year benefits $26,000, third-year
A group of businessmen formed a corporation to lease for 5 years a piece of land at the intersection of two busy streets. The corporation has invested $50,000 in car-washing equipment. They will depreciate the equipment by sum-of-years'-digits depreciation, assuming a $5000 salvage value at the end
The effective combined tax rate in an owner-managed corporation is 40%. An outlay of $20,000 for certain new assets is under consideration. It is estimated that for the next 8 years, these assets will be responsible for annual receipts of $9000 and annual disbursements (other than for income taxes)
A firm is considering the following investment project:The project has a 5-year useful life with a $125,000 salvage value, as shown. Double declining balance depreciation will be used, assuming the $125,000, salvage value. The income, tax rate is 34%. If the firm requires a 10% after-tax rate of
The Shell out Corp. owns a piece of petroleum drilling equipment that costs $100,000 and will be depreciated in 10 years by double declining balance depreciation, with conversion to straight-line depreciation at the optimal point. Assume no salvage value in the depreciation computation and a 34%
A mining corporation purchased $120,000 of production machinery and depreciated it using SOYD depreciation, a 5-year depreciable life, and zero salvage value. The corporation is a profitable one that has a 34% incremental tax rate. At the end of 5 years the mining company changed its method of
An automobile manufacturer is buying some special tools for $100,000. The tools are being’ depreciated' by double declining balance depreciation using a 4- year depreciable life and a $6250 salvage value. It is expected the tools will actually be kept in service for 6 years and then sold for
This is the continuation of Problem 12-21. Instead of paying $100,000 cash for the tools, the corporation will pay $20,000 now and borrow the remaining $80,000. The depreciation schedule will remain unchanged. The loan will be repaid by 4 equal end-of year payments of $25,240. Prepare an expanded
A project will require the investment of $108,000 in equipment (sum-of-years' -digits depreciation with a depreciable life of 8 years and zero salvage value) and $25,000 in raw materials (not depreciable). The annual project income after all expenses except depreciation have been paid is projected
A profitable incorporated business is considering an investment in equipment having the following before tax cash flow. The equipment will be depreciated by double declining balance depreciation with conversion, if appropriate, to straight-line depreciation at the preferred time. For depreciation
A salad oil bottling plant can either purchase caps for the glass bottles at 5 cents each or install $500,000 worth of plastic molding equipment and manufacture the caps at the plant. The manufacturing engineer estimates the material, labor, and other costs would be 3 cents per cap.(a) If 12
A firm has invested $14,000 in machinery with a 7- year useful life. The machinery will have no salvage value, as the cost to remove it will equal its scrap value. The uniform annual benefits from the machinery are $3600. For a 47% income tax rate, and sum-of years' -digits depreciation, compute
A firm manufactures padded shipping bags. One hundred bags are packed in a cardboard carton. At present, machine operators fill the cardboard cartons by eye: that is, when the cardboard carton looks full, it is assumed to contain 100 shipping bags. Actual inspection reveals that the cardboard
Mr. Sam K. Jones, a successful businessman, is considering erecting a small building on a commercial lot he owns very close to the center of town. A local furniture company is willing to lease the building for $9000 per year, paid at the end of each year. It is a net lease, which means the
One January Gerald Adair bought a small house and lot for $99,700. He estimated that $9700 of this amount represented the value of the land. He rented the house for $6500 a year during the 4 years he owned the house. Expenses for property taxes, maintenance, and so forth were $500 per year. For tax
A corporation with a 34% income tax rate is considering the following investment in research equipment and has projected the benefits as follows Before-TaxYear
An engineer is working on the layout of a new research and experimentation facility. Two plant operators will be required. If, however, an. Additional $100,000 of instrumentation and remote controls were added, the plant could be run by a single operator. The total before-tax cost of each plant
A special power tool for plastic products costs $400, has a 4-year useful life, no salvage value, and a 2-year before-tax payback period. Assume uniform annual end-of-year benefits.(a) Compute the before-tax rate of return.(b) Compute the after-tax rate of return, based on MACRS depreciation and a
The Ogi Corporation, a construction company, purchased a pickup truck for $14,000 and used MACRS depreciation in the income tax return. During the time the company had the truck, they estimated that it saved $5000 a year. At the end of 4 years, Ogi sold the truck for $3000. The combined federal and
A profitable wood products corporation is considering buying a parcel of land for $50,000, building a small factory building at a cost of $200,000, and equipping it with $150,000 of MACRS 5-year class machinery. If the project is undertaken, MACRS depreciation will be used. Assume the plant is put
A small vessel was purchased by a chemical company for $55,000 and is to be depreciated by MACRS depreciation. When its requirements changed suddenly, the chemical company leased the vessel to an oil company for 6 years at $10,000 per year. The lease also provided that the vessel could be purchased
Xon, a small oil company, purchased a new petroleum drilling rig for $1,800,000. Xon will depreciate the drilling rig using MACRS depreciation. The drilling rig has been leased to a drilling company, which will pay Xon $450,000 per year for 8 years. At the end of 8 years the drilling rig will
The profitable Palmer Golf Cart Corp. is considering investing $300,000 in special tools for some of the plastic golf cart components. Executives of the company believe the present golf cart model will continue to be manufactured and sold for 5 years, after which a new cart design will be needed,
Uncle Elmo is contemplating a $10,000 investment in a methane gas generator. He estimates his gross income would be $2000 the first year and increase by $200 each year over the next 10years. His expenses of $200 the first year would increase by $200 each year over the next 10 years. He would
Granny's Butter and Egg Business is such that she pays an effective tax rate of 40%. Granny is considering the purchase of a new Throb Churn for $25,000. This churn is a special handling device for food manufacture and has an estimated life of 4 years and a salvage value of $5000. The new churn is
Eric Heiden has a house and lot for sale for $70,000. It is estimated that $10,000 is the value of the land and $60,000 is the value of the house. Bonnie Blair is purchasing the house on January 1 to rent and plans to own the house for 5 years. After 5 years, it is expected that the house and land
Bill Cavitt owns a data processing company. He plans to buy an additional computer for $20,000, use the computer for 3 years, and sell it for $10,000. He expects that use of the computer will produce a net income of $8000 per year. The combined federal and state incremental tax rate is 45%. Using
Refer to Problem 12-33. To help pay for the pickup truck the Ogi Corp. obtained a $10,000 loan from the truck dealer, payable in four end-of-year payments of $2500 plus 10% interest on the loan balance each year.(a) Compute the after-tax rate of return for the truck together with the loan. Note
The management of a private hospital is considering the installation of an automatic telephone switchboard, which would replace a manual switchboard and eliminate the attendant operator's position. The class of service provided by the new equipment is estimated to be at least equal to the present
A contractor has to choose one of the following alternatives in performing earth-moving contracts:(a) Purchase a heavy-duty truck for $13,000. Salvage value is expected to be $3000 at the end of the vehicle's 7-year depreciable life. Maintenance is $1100 per year. Daily operating expenses are
The Able Corporations considering the installation of a small electronic testing device for use in conjunction with a government contract the firm has just won. The testing device will cost $20,000, and have an estimated salvage value of $5000 in 5 years when the government contract is finished.
A house and lot are for sale for $155,000. It is estimated that $45,000 is the value of the land and $110,000 is the value of the house. If purchased, the house can be rented to provide a net income of $12,000 per year after taking all expenses, except depreciation, into account. The house would be
A corporation is considering buying a medium-sized computer that will eliminate a task that must be performed three shifts per day, 7 days per week, except for one 8-hour shift per week when the operation is shut down for maintenance. At present four people are needed to perform the day and night
A sales engineer has the following alternatives .to consider in touring his sales territory.(a) Buy a new car for $14,500. Salvage value is expected to be about $5000 after 3 years. Maintenance and insurance cost is $1000 in the first year and increases at the rate of $500/year in subsequent years.
A large profitable company, in the 40% federal/state tax bracket, is considering the purchase of a new piece of equipment. The new equipment will yield benefits of $10,000 in Year 1, $15,000 in Year 2, $20,000 in. Year 3, and $20,000 in Year4, the equipment is to be depreciated using 5-year MACRS
A prosperous businessman is considering two alternative investments in bonds. In both cases the first interest payment would be received at the end of the first year. If his personal taxable income is fixed at $40,000 and he is single, which investment produces the greater after-tax rate of return?
A small-business corporation is considering whether to replace some equipment in the plant. An analysis indicates there are five alternatives in addition to the do-nothing option, Alt. A. The alternatives have a 5-year useful life with no salvage value. Straight-line depreciation would be
A corporation with $7 million in annual taxable income is considering two alternatives:Before-Tax Cash FlowYear Alt. 1 Alt. 20
Two mutually exclusive alternatives are being considered by a profitable corporation with an annual taxable income between $5 million and $10 million. Before-Tax Cash FlowYear Alt. A
A large profitable corporation is considering two mutually exclusive capital investments:
A store owner, Joe Lang, believes his business has suffered from the lack of adequate customer parking space. Thus, when he was offered an opportunity to buy an old building and lot next to his store, he was interested. He would demolish the old building and make off-street parking for 20
Typically there are two alternatives in a replacement analysis. One alternative is to replace the defender now. The other alternative is which one of the following?(a) Keep the defender for its remaining useful life.(b) Keep the defender for another year and then reexamine the situation.(c) Keep
The economic life of the defender can be obtained if certain estimates about the defender can be made. Assuming those estimates prove to be exactly correct, one can accurately predict the year when the defender should be replaced, even if nothing is known about the challenger. Is this assumption
A machine tool, which has been used in a plant for 10 years, is being considered for replacement. It cost $9500 and was depreciated by MACRS depreciation using a 5-year recovery period. An equipment dealer indicates that the machine has no resale value. Maintenance on the machine tool has been a
A new$40,000bottlingmachinehasjust been installed in a plant. It will have no salvage value when it is removed. The plant manager has asked you to estimate the economic service life for the machine, ignoring income taxes. He estimates that the annual maintenance cost will be constant at $2500 per
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