1) Galvanized Products is considering purchasing a new computer system for their enterprise data management system. The vendor has quoted a purchase price of $100,000. Galvanized Products is planning to borrow one-fourth of the purchase price from a bank at 18.00 percent compounded annually. The loan is to be repaid using equal annual payments over a 3-year period. The computer system is expected to last 5 years and has a salvage value of $4,000 at that time. Over the 5-year period, Galvanized Products expects to pay a technician $21,000 per year to maintain the system but will save $54,000 per year through increased efficiencies. Galvanized Products uses a MARR of 20.00 percent/year to evaluate investment

a) What is the present worth of this investment?

b) What is the decision rule for judging the attractiveness of investments based on present worth?

C) Should the new computer system be purchased?

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2) Parker County Community College (PCCC) is trying to determine whether to use no insulation or to use insulation that is either 1 inch thick or 2 inches thick on its steam pipes. The heat loss from the pipes without insulation is expected to cost $1.10 per year per foot of pipe. A 1-inch thick insulated covering will eliminate 76 percent of the loss and will cost $0.25 per foot. A 2-inch thick insulated covering will eliminate 92 percent of the loss and will cost $0.90 per foot. PCCC Physical Plant Services estimates that there are 230,000 feet of steam pipe on campus. The PCCC Accounting Office requires a 9.0 percent/year return to justify capital expenditures. The insulation has a life expectancy of 10 years.

a) cost of No insulation

b) cost of 1-inch insulation

c) cost of 2-inch insulation

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3) Lincoln Park Zoo in Chicago is considering a renovation that will improve some physical facilities at a cost of $1,800,000. Addition of new species will cost another $310,000. Additional maintenance, food, and animal care and replacement will cost $145,000 in the first year, increasing by 3 percent each year thereafter. The zoo has been in operation since 1868 and is expected to continue indefinitely; however, it is common to use a 20-year planning horizon on all new investments. Salvage value on facilities after 20 years will be 40 percent of initial cost. Interest is 7 percent. An estimated 1.5 million visits per year are made to the zoo, and the cost remains free year-round.

a) How much additional benefit per visit, on average, must the visitors perceive to justify the renovation?

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4) Two incinerators are being considered by a waste management company. Design A has an initial cost of $2,500,000, has annual operating and maintenance costs of $850,000, and requires overhauls every 5 years at a cost of $975,000. Design B is more sophisticated, including computer controls; it has an initial cost of $5,525,000, has annual operating and maintenance costs of $650,000, and requires overhauls every 10 years at a cost of $3,475,000.

a) find capitalized cost of design a