Answered step by step
Verified Expert Solution
Link Copied!

Question

1 Approved Answer

NPV and EAC assume that this will involve the replacement of an equivalent engine at either five or seven years. Alternative 1 - Purchase second-hand

NPV and EAC assume that this will involve the replacement of an equivalent engine at either five or seven years.

Alternative 1 - Purchase second-hand Engine for $ 178,180

Costs associated with overhaul and reconditioning $155,000

Post operating costs per annum: $625,000

Trade-In Value 10 years $20,000 Trade-In Value 7 years $50,000 Trade-In Value 5 years $80,000

Alternative 2 - Purchase NEW Engine for $ 930,000. (50% of the payment for the engine to be made immediately with the balance due in annual increments of $155,000 in years 1, 2 and 3) and it will cost $25,000 to have the engine integrated (Payment immediately)

Post operating costs per annum: $485,000

Insurance costs will be $70,000 in year 1 but are expected to reduce by 5% each year

Trade-In Value 10 years $180,000 Trade-In Value 7 years $290,000 Trade-In Value 5 years $400,000

Discount Rate 11%

Note: assume that depreciation and taxation do not need to be included in any calculations

Step by Step Solution

There are 3 Steps involved in it

Step: 1

blur-text-image

Get Instant Access to Expert-Tailored Solutions

See step-by-step solutions with expert insights and AI powered tools for academic success

Step: 2

blur-text-image

Step: 3

blur-text-image

Ace Your Homework with AI

Get the answers you need in no time with our AI-driven, step-by-step assistance

Get Started

Recommended Textbook for

CFP Board Financial Planning Competency Handbook

Authors: CFP Board

2nd Edition

1119094968, 978-1119094968

More Books

Students also viewed these Finance questions

Question

8. Explain the contact hypothesis.

Answered: 1 week ago

Question

2. Define the grand narrative.

Answered: 1 week ago