INSTRUCTIONS Description 1. OBJECTIVE This practical exercise is designed to help choose the best alternative or proposal by performing an economic analysis. 2. MATERIALS NEEDED a. EA Handout Format A (Excel Sheet) b. Economic Analysis Handout 1 - Discount Factors (Word Doc.) c. Perform Economic Analysis ppt. d. Summary Sheet - Perform Economic Analysis Instructions All situations have one correct answer (beware of rounding, if you get an answer not exactly like the solution, it could be due to rounding). You will be required to read and determine the important information (highlight) and develop a timeline. This practical exercise will take 30 minutes (0.5 hours) to complete. PROBLEM: You work in the $2, security section of your division. Your co-worker, Mr. Smith, recently completed an economic analysis for purchasing two (2) different large scale shredders for secret documents - the Dunder Mifflin Shredder Version 2.0 and Skynet T-800 Shredder. Due to a computer system virus, all the electronic files for this economic analysis have been lost. Mr. Smith is away on leave and can not be reached. You were able to find a hard copy of Mr. Smith's analysis, but the pages were stained with coffee. You are confident the parts you can read are correct. Your boss has asked you for help. The commander needs the below questions in 20 minutes, so there is no time to totally re-do all the work. The last person that missed one of the commander's deadlines was fired. You know that the economic life for the machines is 4 years. You know the salvage value for the Dunder Mifflin Shredder Version 2.0 is $500. You know the terminal value for the Skynet T-800 Shredder is $750. Using a 10% discount rate and end of year interest tables, and the information provided below answer the below questions. 

 

QUESTION 1 Alternative 1 Puchace Dunder Mifflin Shredder Version 2.0 Project Year Nonrecurring / Investment Recurring Operation Annual Cost Discont Factor Discounted Annual Cost Total $10,800.00 $6,000 $16,800 3.169 $15,414.00 Alternative 2 Puchase Skynet T-800 Shredder Project Year Nonrecurring / Investment Recurring Operation Annual Cost Discont Factor Discounted Annual Cost Total $12,400.00 $5,200 $17,600 3.169 $16,450.00 What is the Uniform Annual cost without terminal value for Alternative 2? O $5, 191 O $4,864 O $16,450 QUESTION 2 What is the total discounted annual cost for Alternative 2? O $5,191 O $4,864 O $16,450 

 

QUESTION 3 What is the Uniform Annual cost without terminal value for Alternative 1? O $5, 191 O
$4,864 O $16,450 QUESTION 4 Based on Uniform Annual cost with terminal value, which alternative
would you choose? O Alternative 1 O Alternative 2

END OF YEAR DISCOUNT FACTORS Column A - 10% Column B - 10% PROJECT Present Value of $1 (single amount - to be used when Present Value of $1 (cumulative uniform series - to be YEAR cash flows accrue in different amounts each year). used when cash flows accrue in the same amount each year 0 1.000 1.000 0.909 0.909 0.826 1.735 0.751 2.486 0.683 3.169 0.621 3.790 0.564 4.354 0.513 4.867 0.466 5.333 0.424 5.757 0.386 6.143 0.350 6.493 0.319 6.812 0.290 7.102 0.263 7.365 0.239 7.604 0.218 7.822 0.198 8.020 0. 180 8.200 0.164 8.364 20 0.149 8.513 21 0.135 8.648 22 0.123 8.771 23 0.112 8.883 24 0.102 8.985 25 0.092 9.077_ The discount factors presented in the table above implicitly assure end-of-year lump sum costs and returns. When costs and returns occur in a steady stream, applying mid-year discount factors may be more appropriate. The factors in this table can be converted to a mid-year basis by multiplying them by 1.048809. 

ECONOMIC ANALYSIS - DOD INVESTMENTS FORMAT A SUMMARY OF PROJECT COSTS 1. Submitting DOD Component: 2. Date of Submission: 3. Project Title: 4. Description of Project Objective: 5. Alternative: 6. Economic Life: 7. 8. PROJECT COSTS a. b. C. d. e . PROJECT NONRECURRING RECURRING ANNUAL DISCOUNT DISCOUNTED YEAR INVESTMENT OPERATIONS COST FACTOR ANNUAL COST $0 $0 $0 $0 $0 $0 $0 $0 $0 $0 $0 $0 $0 $0 $0 $0 $0 $0 $0 $0 9. TOTALS $0.00 $0.00 $0 0.000 $0 10a. Total Project Cost (discounted) 10b. Uniform Annual Cost (without terminal value) #DIV/O! 11. Less Terminal Value (discounted) Discount Factor $0 12a. Net Total Project Cost (discounted) 50