{ "key_pair_value_system": true, "answer_rating_count": "", "question_feedback_html": { "html_star": "", "html_star_feedback": "" }, "answer_average_rating_value": "", "answer_date_js": "2024-06-09T20:28:40-04:00", "answer_date": "2024-06-09 20:28:40", "is_docs_available": "", "is_excel_available": "", "is_pdf_available": "", "count_file_available": 0, "main_page": "student_question_view", "question_id": "2543332", "url": "\/study-help\/questions\/new-economy-transport-b-there-is-no-question-that-the-2543332", "question_creation_date_js": "2024-06-09T20:28:40-04:00", "question_creation_date": "Jun 09, 2024 08:28 PM", "meta_title": "[Solved] New Economy Transport (B) There is no que | SolutionInn", "meta_description": "Answer of - New Economy Transport (B) There is no question that the Vital Spark needs an overhaul soon. However, Mr. Handy feels i | SolutionInn", "meta_keywords": "new,economy,transport,question,vital,spark,overhaul,handy,feels,unwise,proceed,purchase", "question_title_h1": "New Economy Transport (B) There is no question that the Vital Spark needs an overhaul soon. However, Mr. Handy feels it unwise to proceed without", "question_title": "New Economy Transport (B) There is no question that the Vital Spark", "question_title_for_js_snippet": "New Economy Transport (B) There is no question that the Vital Spark needs an overhaul soon However, Mr Handy feels it unwise to proceed without also considering the purchase of a new vessel Cohn and Doyle, Inc , a Wisconsin shipyard, has approached NETCO with a design incorporating a Kort nozzle, extensively automated navigation and power control systems, and much more comfortable accommodations for the crew Estimated annual operating costs of the new vessel are Fuel $380,000 Labor and benefits 330,000 Maintenance 70,000 Other 105,000 $885,000 The crew would require additional training to handle the new vessel's more complex and sophisticated equipment Training would probably cost $50,000 next year The estimated operating costs for the new vessel assume that it would be operated in the same way as the Vital Spark However, the new vessel should be able to handle a larger load on some routes, which could generate additional revenues, net of additional out of pocket costs, of as much as $100,000 per year Moreover, a new vessel would have a useful service life of 20 years or more 16This additional outlay would also qualify for tax depreciation in the seven year MACRS class Visit us at www mhhe com bma Chapter 6 Making Investment Decisions with the Net Present Value Rule 159 Cohn and Doyle offered the new vessel for a fixed price of $3,000,000, payable half immediately and half on delivery next year Mr Handy stepped out on the foredeck of the Vital Spark as she chugged down the Cook Inlet A rusty old tub, he muttered, but she's never let us down I'll bet we could keep her going until next year while Cohn and Doyle are building her replacement We could use up the spare parts to keep her going We might even be able to sell or scrap her for book value when her replacement arrives But how do I compare the NPV of a new ship with the old Vital Spark Sure, I could run a 20 year NPV spreadsheet, but I don't have a clue how the replacement will be used in 2027 or 2032 Maybe I could compare the overall cost of overhauling and operating the Vital Spark to the cost of buying and operating the proposed replacement QUESTIONS 1 Calculate and compare the equivalent annual costs of (a) overhauling and operating the Vital Spark for 12 more years, and (b) buying and operating the proposed replacement vessel for 20 years What should Mr Handy do if the replacement's annual costs are the same or lower 2 Suppose the replacement's equivalent annual costs are higher than the Vital Spark 's What additional information should Mr Handy seek in this case ", "question_description": "\"image

New Economy Transport (B)<\/p>

There is no question that the Vital Spark needs an overhaul soon. However, Mr. Handy feels it<\/p>

unwise to proceed without also considering the purchase of a new vessel. Cohn and Doyle, Inc., a<\/p>

Wisconsin shipyard, has approached NETCO with a design incorporating a Kort nozzle, extensively<\/p>

automated navigation and power control systems, and much more comfortable accommodations<\/p>

for the crew. Estimated annual operating costs of the new vessel are:<\/p>

Fuel : $380,000<\/p>

Labor and benefits : 330,000<\/p>

Maintenance :70,000<\/p>

Other :105,000<\/p>

$885,000<\/p>

The crew would require additional training to handle the new vessel's more complex and sophisticated<\/p>

equipment. Training would probably cost $50,000 next year.<\/p>

The estimated operating costs for the new vessel assume that it would be operated in the same<\/p>

way as the Vital Spark. However, the new vessel should be able to handle a larger load on some<\/p>

routes, which could generate additional revenues, net of additional out-of-pocket costs, of as<\/p>

much as $100,000 per year. Moreover, a new vessel would have a useful service life of 20 years<\/p>

or more.<\/p>

16This additional outlay would also qualify for tax depreciation in the seven-year MACRS class.<\/p>

Visit us at www.mhhe.com\/bma<\/p>

Chapter 6 Making Investment Decisions with the Net Present Value Rule 159<\/p>

Cohn and Doyle offered the new vessel for a fixed price of $3,000,000, payable half immediately<\/p>

and half on delivery next year.<\/p>

Mr. Handy stepped out on the foredeck of the Vital Spark as she chugged down the Cook Inlet.<\/p>

\"A rusty old tub,\" he muttered, \"but she's never let us down.\" I'll bet we could keep her going until<\/p>

next year while Cohn and Doyle are building her replacement. We could use up the spare parts to<\/p>

keep her going. We might even be able to sell or scrap her for book value when her replacement<\/p>

arrives.<\/p>

\"But how do I compare the NPV of a new ship with the old Vital Spark? Sure, I could run a<\/p>

20-year NPV spreadsheet, but I don't have a clue how the replacement will be used in 2027 or<\/p>

2032. Maybe I could compare the overall cost of overhauling and operating the Vital Spark to the<\/p>

cost of buying and operating the proposed replacement.\"<\/p>

QUESTIONS<\/p>

1. Calculate and compare the equivalent annual costs of (a) overhauling and operating the<\/p>

Vital Spark for 12 more years, and (b) buying and operating the proposed replacement vessel<\/p>

for 20 years. What should Mr. Handy do if the replacement's annual costs are the same or<\/p>

lower?<\/p>

2. Suppose the replacement's equivalent annual costs are higher than the Vital Spark 's. What<\/p>

additional information should Mr. Handy seek in this case?<\/p>\"image", "transcribed_text": "", "related_book": { "title": "The Changing Geography Of Banking And Finance", "isbn": "1441947205, 978-1441947208", "edition": "1st Edition", "authors": "Pietro Alessandrini ,Michele Fratianni ,Alberto Zazzaro", "cover_image": "https:\/\/dsd5zvtm8ll6.cloudfront.net\/si.question.images\/book_images\/2024\/03\/66050c9f889e3_94366050c9f62f22.jpg", "uri": "\/textbooks\/the-changing-geography-of-banking-and-finance-1st-edition-978-1441947208-260622", "see_more_uri": "" }, "free_related_book": { "isbn": "1032075856", "uri": "\/textbooks\/efficiency-and-bureaucratisation-of-criminal-justice-global-trends-1st-edition-9781032075853-132472", "name": "Efficiency And Bureaucratisation Of Criminal Justice Global Trends", "edition": "1st\u00a0Edition" }, "question_posted": "2024-06-09 20:28:40", "see_more_questions_link": "\/study-help\/questions\/business-accounting-2024-September-21", "step_by_step_answer": "The Answer is in the image, click to view ...", "students_also_viewed": [ { "url": "\/two-tiny-spherical-water-drops-with-identical-charges-of-", "description": "Two tiny, spherical water drops, with identical charges of 1.00 x 10-16 C, have a center-to-center separation of 1.00 cm. 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How does it fit into a systems approach?", "stars": 3 } ], "next_back_navigation": { "previous": "\/study-help\/questions\/this-question-has-several-parts-that-must-be-completed-sequentially-2543331", "next": "\/study-help\/questions\/2-a-stock-is-trading-at-iill-a-call-option-2543333" }, "breadcrumbs": [ { "name": "Study help", "link": "https:\/\/www.solutioninn.com\/study-help\/questions-and-answers" }, { "name": "Business", "link": "https:\/\/www.solutioninn.com\/study-help\/questions-and-answers\/business" }, { "name": "Finance", "link": "https:\/\/www.solutioninn.com\/study-help\/questions\/business-finance" }, { "name": "New Economy Transport (B) There is no question that the Vital Spark", "link": "https:\/\/www.solutioninn.com\/study-help\/questions\/new-economy-transport-b-there-is-no-question-that-the-2543332" } ], "skill_details": { "skill_id": "13", "skill_name": "Finance", "parent_id": "1" } } } }