After receiving a fine from the EPA, a certain company has decided to invest in a new incinerator to meet air quality standards. Several options were considered, but only three meet the parameters for compounding and enforcement. Incinerators differ in initial cost and annual operation and maintenance costs, useful life, and residual value. The following cost estimates will be used to make the decision. The benefit of either alternative will be EPA penalty savings equal to $ 350,000/year. Alternative Initial Annual cost of operation Mantainance anual cost Useful Life Residual (years) Value investment WA 1 $250,000 $105,000 $42,000 5 $25,000 2. $385,000 $78,000 $28,000 10 $40,000 3 $475,000 $65,000 $18,000 10 $45,000 a) Perform an "After-Tax Analysis" by Rate of Return to select the best alternative, remembering that the investment is mandatory if you want to keep the business operating. All the tables you need to complete the analysis, including the depreciation calendar and the amortization table, if applicable, must be complete and clearly identified in the excel. Assume the following for analysis: . The company makes contributions at a tax rate of 36%, The company evaluates its investments at a MARR of 5%. The investment would be made with an advance payment of 10% of the cost and the remainder would be financed with a loan at 4.75% annual effective interest. The asset will be depreciated using the "straight line" method for its lifetime . If necessary for the analysis, assume that at the end of its useful life, the asset may be sold at an identical value to its residual value and it will be replaced with an identical one under conditions identical to the original ones. b) Will the decision be affected if we assume that, regardless of the equipment purchased, it will be sold at the end of year 5 for an amount equivalent to 15% higher than its "Book Value"? What exact price are you going to brag for sale in year 5? After receiving a fine from the EPA, a certain company has decided to invest in a new incinerator to meet air quality standards. Several options were considered, but only three meet the parameters for compounding and enforcement. Incinerators differ in initial cost and annual operation and maintenance costs, useful life, and residual value. The following cost estimates will be used to make the decision. The benefit of either alternative will be EPA penalty savings equal to $ 350,000/year. Alternative Initial Annual cost of operation Mantainance anual cost Useful Life Residual (years) Value investment WA 1 $250,000 $105,000 $42,000 5 $25,000 2. $385,000 $78,000 $28,000 10 $40,000 3 $475,000 $65,000 $18,000 10 $45,000 a) Perform an "After-Tax Analysis" by Rate of Return to select the best alternative, remembering that the investment is mandatory if you want to keep the business operating. All the tables you need to complete the analysis, including the depreciation calendar and the amortization table, if applicable, must be complete and clearly identified in the excel. Assume the following for analysis: . The company makes contributions at a tax rate of 36%, The company evaluates its investments at a MARR of 5%. The investment would be made with an advance payment of 10% of the cost and the remainder would be financed with a loan at 4.75% annual effective interest. The asset will be depreciated using the "straight line" method for its lifetime . If necessary for the analysis, assume that at the end of its useful life, the asset may be sold at an identical value to its residual value and it will be replaced with an identical one under conditions identical to the original ones. b) Will the decision be affected if we assume that, regardless of the equipment purchased, it will be sold at the end of year 5 for an amount equivalent to 15% higher than its "Book Value"? What exact price are you going to brag for sale in year 5
