Question
A project has an investment cost of $800,000 and a profitability index of 1.3 .What is the net present value of the project? A currently
- A project has an investment cost of $800,000 and a profitability index of1.3.What is the net present value of the project?
- A currently used machine costs $6,500 annually to run.What is the maximum that should be paid to replace the machine with one that will last3years and will cost only $1,000annually to run?The opportunity cost of capital is 9 %.
The maximum amount that should be paid is: (please round your final result to 2 decimals, but keep as manydecimals as possible during calculation)
3.Consider the following two tractors a company can purchase. The following tables provide the costs the company will incur (in thousands of dollars) in the lifetime of each tractor.
Initial Cost Operating Costs per Year Expected Life
Diesel $15,000 $9,000 7
Gasoline $6,000 $11,000 5
The transportation firm can only afford one of the tractors. The two tractors have identical production capabilities. The firm's cost of capital is 9%.
a) Find the present value of the costs of using the two tractors.
Diesel =
Gasoline =
b) Given that the net present value of the costs of the Diesel tractor are$60,296.58 and of the Gasoline tractor are $48,786.16, what are the equivalent annual costs for each machine?
EACDiesel=
EACGasoline=
c) Given that the equivalent annual cost of the Diesel tractor is $11,980.36 and of the Gasoline tractor if $12,542.55, which tractor should the company buy?
4. a) Max-Heat Furnaces cost $400 to purchase and results in an electricity bill of $150 per year. The Max-Heat Furnaces lasts for 4 years. The discount rate is 15%. What is the equivalent annual cost?
b) Given an equivalent annual cost of $290.11, should you replace your current furnace which costs $340 per year to run?
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