Questions 1-5 are worth 20 points each. 1. A concrete fabricating machine was purchased 10 years ago for $95,000 with an estimated life of 15 years and $15,000 salvage. When it was purchased, $25,000 was borrowed at 6.7% per year with the remaining $70,000 from equity capital. The loan is being paid off using a conventional 15 year end of year payment schedule. Straight-line depr has been used. This machine produces concrete at the rate of 100 tons per 3.74 hours and has an efficiency rating of 87%. The machine requires 3 operators paid a wage rate last year of $17.93 per hour. The machine is run on one shift only. (2000 hours regular time) with overtime scheduled as necessary. Demand averages 52,500 tons per year. Overtime pay is 50% greater than the base rate. Labor costs are increasing at 5.7% per year. The concrete sold last year for $2.95 per ton. Future price increases are expected to average 6.5%per year. Maintenance last year was $4900. The machine can be kept running but maintenance will increase by 11% per year. The current market value for this machine is $35.000. Tax rates are 31% on ordinary income and 20% on capital gains income Inflation is expected to be 4.2%, 4.8%, and 5.2% for the next 3 years. Assume the machine will be sold in three years for $5000. Complete the cash flow table and calculate io, the real return on the equity capital. 2. The following data have been obtained for a machine. Cash operating costs $5,000 year Life = 5 years Labor per hour = $14.00 First Cost =$80,000 Salvage= $10,000 Production rate = 27 units/hr Tax rate = 35% Depr S.Lie=14.7 id=7.9%rd 35 The selling price is $50.00- 01n where n is the number sold. 2. Calculate the break even point(s) for production per year b. Calculate the point of maximum profit, and the profit at that point 3. After graduation you plan to travel around the country selling photos from your conversion van. You believe you can buy a van for $60,000 with a $12,000 salvage in 3 years. You plan to use straight line depreciation. To buy the van you plan to take out a $20,000 loan at an annual interest rate of 9.7%, and finance the remaining 540,000 with equity capital from investors. You have promised your investors a 17.9%retum. You believe your annual operating expenses will be $5500 per year. Your overall tax rate will be 35% Your sales plan calls for selling 1000 photos the first year, 1500 the second and 2300 the third. You want to charge the same price each year. Calculate how much you will need to charge per photo for this plan to pay for all its bills 4. You bought some land for $1.200,000. You plan to build an apartment building for $1,300,000 which will provide rental revenue of $500,000 per year. Depris SL with a 30 vr life and no salvage Tax rate is 34%, on ordinary income and 20% on capital gains. What will you need to sell the apartment for before taxes in 15 years to earn a 15% after tax Tetum? 5. Two mutually exclusive computer hard drive designs are under consideration MARR = 17% The following data apply A First Cost = $6300 ATCF yr = 3300 Salvage=0 Life = 3 yrs B. First Cost = 11.500 ATCE Y = 4100 Salvage = 1000 Life =5 VIS Analyze and make a recommendation using a NPV b. AWC Payback d IRR Questions 1-5 are worth 20 points each. 1. A concrete fabricating machine was purchased 10 years ago for $95,000 with an estimated life of 15 years and $15,000 salvage. When it was purchased, $25,000 was borrowed at 6.7% per year with the remaining $70,000 from equity capital. The loan is being paid off using a conventional 15 year end of year payment schedule. Straight-line depr has been used. This machine produces concrete at the rate of 100 tons per 3.74 hours and has an efficiency rating of 87%. The machine requires 3 operators paid a wage rate last year of $17.93 per hour. The machine is run on one shift only. (2000 hours regular time) with overtime scheduled as necessary. Demand averages 52,500 tons per year. Overtime pay is 50% greater than the base rate. Labor costs are increasing at 5.7% per year. The concrete sold last year for $2.95 per ton. Future price increases are expected to average 6.5%per year. Maintenance last year was $4900. The machine can be kept running but maintenance will increase by 11% per year. The current market value for this machine is $35.000. Tax rates are 31% on ordinary income and 20% on capital gains income Inflation is expected to be 4.2%, 4.8%, and 5.2% for the next 3 years. Assume the machine will be sold in three years for $5000. Complete the cash flow table and calculate io, the real return on the equity capital. 2. The following data have been obtained for a machine. Cash operating costs $5,000 year Life = 5 years Labor per hour = $14.00 First Cost =$80,000 Salvage= $10,000 Production rate = 27 units/hr Tax rate = 35% Depr S.Lie=14.7 id=7.9%rd 35 The selling price is $50.00- 01n where n is the number sold. 2. Calculate the break even point(s) for production per year b. Calculate the point of maximum profit, and the profit at that point 3. After graduation you plan to travel around the country selling photos from your conversion van. You believe you can buy a van for $60,000 with a $12,000 salvage in 3 years. You plan to use straight line depreciation. To buy the van you plan to take out a $20,000 loan at an annual interest rate of 9.7%, and finance the remaining 540,000 with equity capital from investors. You have promised your investors a 17.9%retum. You believe your annual operating expenses will be $5500 per year. Your overall tax rate will be 35% Your sales plan calls for selling 1000 photos the first year, 1500 the second and 2300 the third. You want to charge the same price each year. Calculate how much you will need to charge per photo for this plan to pay for all its bills 4. You bought some land for $1.200,000. You plan to build an apartment building for $1,300,000 which will provide rental revenue of $500,000 per year. Depris SL with a 30 vr life and no salvage Tax rate is 34%, on ordinary income and 20% on capital gains. What will you need to sell the apartment for before taxes in 15 years to earn a 15% after tax Tetum? 5. Two mutually exclusive computer hard drive designs are under consideration MARR = 17% The following data apply A First Cost = $6300 ATCF yr = 3300 Salvage=0 Life = 3 yrs B. First Cost = 11.500 ATCE Y = 4100 Salvage = 1000 Life =5 VIS Analyze and make a recommendation using a NPV b. AWC Payback d IRR