1. Phoenix Manufacturing Company is planning to modernize one of its distribution centers located outside Denver, Colorado. Two options to move goods in the distribution center have been under consideration: a conveyor system and forklift trucks. The firm expects that the distribution center will be operational for the next 10 years, and then it will be converted into a factory outlet. The conveyor system would last five years whereas the forklift trucks would last only seven years. The two options will be designed differently but will have identical capacities and will do exactly the same job. The expected cash flows for the two options, including maintenance costs, salvage values, and tax effects are as follows Period 0 1 2 3 Conveyor system -5205,000 - 15,000 - 15,000 - 15,000 - 15,000 - 15,000 - 15,000 - 15,000 - 15,000 5000 Lift trucks -$275,000 -13,000 -13,000 13,000 - 13,000 - 13.000 - 13.000 4000 004 With this scenario, which option should the form select at MARR - 12%? Since each option has a shorter life than the required service period (10Years), we need to muke an explicit assumption of how the service requirement is to be met If the company goes with the conveyor system, it will spend $18,000 to overhaul system to extend its service life beyond eight years. The expected salvage value of the system at the end of the required service period (10 years) will be $6000. The annual operating and maintenance cost will be $15,000 If the company goes with the Lift truck option, the company will consider leasing a comparable lift truck that has an annual lease payment of $8000, payable at the beginning of each year, with an annual operating cost of $13,000 for the remaining required service period. (6 Points) 1. Phoenix Manufacturing Company is planning to modernize one of its distribution centers located outside Denver, Colorado. Two options to move goods in the distribution center have been under consideration: a conveyor system and forklift trucks. The firm expects that the distribution center will be operational for the next 10 years, and then it will be converted into a factory outlet. The conveyor system would last five years whereas the forklift trucks would last only seven years. The two options will be designed differently but will have identical capacities and will do exactly the same job. The expected cash flows for the two options, including maintenance costs, salvage values, and tax effects are as follows Period 0 1 2 3 Conveyor system -5205,000 - 15,000 - 15,000 - 15,000 - 15,000 - 15,000 - 15,000 - 15,000 - 15,000 5000 Lift trucks -$275,000 -13,000 -13,000 13,000 - 13,000 - 13.000 - 13.000 4000 004 With this scenario, which option should the form select at MARR - 12%? Since each option has a shorter life than the required service period (10Years), we need to muke an explicit assumption of how the service requirement is to be met If the company goes with the conveyor system, it will spend $18,000 to overhaul system to extend its service life beyond eight years. The expected salvage value of the system at the end of the required service period (10 years) will be $6000. The annual operating and maintenance cost will be $15,000 If the company goes with the Lift truck option, the company will consider leasing a comparable lift truck that has an annual lease payment of $8000, payable at the beginning of each year, with an annual operating cost of $13,000 for the remaining required service period. (6 Points)
