An oil refinery finds that it is necessary to treat the waste liquids from a new process before discharging them into a stream. In-house treatment will have an annual cost of $20,000 the first year, but process improvements will allow the annual cost to decline by $2,000 each subsequent year. As an alternative, an outside company will process the wastes for an initial cost of $10,500 and an annual fixed price of $8,500/year throughout the 11 year period. Either way, there is no need t treat the wastes after 11 years. Using the AW method, calculate the equivalent uniform annual cost (EUAC) of each alternative and determine how the waste should be processed. The company's MARR is 12%. Click the icon to view the interest and annuity table for discrete

An oil refinery finds that it is necessary to treat the waste liquids from a new process before discharging them into a stream. In-house treatment will have an annual cost of $20,000 the first year, but process improvements will allow the annual cost to decline by $2,000 each subsequent year. As an alternative, an outside company will process the wastes for an initial cost of $10,500 and an annual fixed price of $8,500/year throughout the 11 year period. Either way, there is no need t treat the wastes after 11 years. Using the AW method, calculate the equivalent uniform annual cost (EUAC) of each alternative and determine how the waste should be processed. The company's MARR is 12%. Click the icon to view the interest and annuity table for discrete

Essentials of Business Analytics (MindTap Course List)

2nd Edition

ISBN:9781305627734

Author:Jeffrey D. Camm, James J. Cochran, Michael J. Fry, Jeffrey W. Ohlmann, David R. Anderson

Publisher:Jeffrey D. Camm, James J. Cochran, Michael J. Fry, Jeffrey W. Ohlmann, David R. Anderson

Chapter15: Decision Analysis

Section: Chapter Questions

Problem 5P: Hudson Corporation is considering three options for managing its data warehouse: continuing with its...

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Jonfran Company manufactures three different models of paper shredders including the waste container, which serves as the base. While the shredder heads are different for all three models, the waste container is the same. The number of waste containers that Jonfran will need during the following years is estimated as follows: The equipment used to manufacture the waste container must be replaced because it is broken and cannot be repaired. The new equipment would have a purchase price of 945,000 with terms of 2/10, n/30; the companys policy is to take all purchase discounts. The freight on the equipment would be 11,000, and installation costs would total 22,900. The equipment would be purchased in December 20x4 and placed into service on January 1, 20x5. It would have a five-year economic life and would be treated as three-year property under MACRS. This equipment is expected to have a salvage value of 12,000 at the end of its economic life in 20x9. The new equipment would be more efficient than the old equipment, resulting in a 25 percent reduction in both direct materials and variable overhead. The savings in direct materials would result in an additional one-time decrease in working capital requirements of 2,500, resulting from a reduction in direct material inventories. This working capital reduction would be recognized at the time of equipment acquisition. The old equipment is fully depreciated and is not included in the fixed overhead. The old equipment from the plant can be sold for a salvage amount of 1,500. Rather than replace the equipment, one of Jonfrans production managers has suggested that the waste containers be purchased. One supplier has quoted a price of 27 per container. This price is 8 less than Jonfrans current manufacturing cost, which is as follows: Jonfran uses a plantwide fixed overhead rate in its operations. If the waste containers are purchased outside, the salary and benefits of one supervisor, included in fixed overhead at 45,000, would be eliminated. There would be no other changes in the other cash and noncash items included in fixed overhead except depreciation on the new equipment. Jonfran is subject to a 40 percent tax rate. Management assumes that all cash flows occur at the end of the year and uses a 12 percent after-tax discount rate. Required: 1. Prepare a schedule of cash flows for the make alternative. Calculate the NPV of the make alternative. 2. Prepare a schedule of cash flows for the buy alternative. Calculate the NPV of the buy alternative. 3. Which should Jonfran domake or buy the containers? What qualitative factors should be considered? (CMA adapted)
Mallette Manufacturing, Inc., produces washing machines, dryers, and dishwashers. Because of increasing competition, Mallette is considering investing in an automated manufacturing system. Since competition is most keen for dishwashers, the production process for this line has been selected for initial evaluation. The automated system for the dishwasher line would replace an existing system (purchased one year ago for 6 million). Although the existing system will be fully depreciated in nine years, it is expected to last another 10 years. The automated system would also have a useful life of 10 years. The existing system is capable of producing 100,000 dishwashers per year. Sales and production data using the existing system are provided by the Accounting Department: All cash expenses with the exception of depreciation, which is 6 per unit. The existing equipment is being depreciated using straight-line with no salvage value considered. The automated system will cost 34 million to purchase, plus an estimated 20 million in software and implementation. (Assume that all investment outlays occur at the beginning of the first year.) If the automated equipment is purchased, the old equipment can be sold for 3 million. The automated system will require fewer parts for production and will produce with less waste. Because of this, the direct material cost per unit will be reduced by 25 percent. Automation will also require fewer support activities, and as a consequence, volume-related overhead will be reduced by 4 per unit and direct fixed overhead (other than depreciation) by 17 per unit. Direct labor is reduced by 60 percent. Assume, for simplicity, that the new investment will be depreciated on a pure straight-line basis for tax purposes with no salvage value. Ignore the half-life convention. The firms cost of capital is 12 percent, but management chooses to use 20 percent as the required rate of return for evaluation of investments. The combined federal and state tax rate is 40 percent. Required: 1. Compute the net present value for the old system and the automated system. Which system would the company choose? 2. Repeat the net present value analysis of Requirement 1, using 12 percent as the discount rate. 3. Upon seeing the projected sales for the old system, the marketing manager commented: Sales of 100,000 units per year cannot be maintained in the current competitive environment for more than one year unless we buy the automated system. The automated system will allow us to compete on the basis of quality and lead time. If we keep the old system, our sales will drop by 10,000 units per year. Repeat the net present value analysis, using this new information and a 12 percent discount rate. 4. An industrial engineer for Mallette noticed that salvage value for the automated equipment had not been included in the analysis. He estimated that the equipment could be sold for 4 million at the end of 10 years. He also estimated that the equipment of the old system would have no salvage value at the end of 10 years. Repeat the net present value analysis using this information, the information in Requirement 3, and a 12 percent discount rate. 5. Given the outcomes of the previous four requirements, comment on the importance of providing accurate inputs for assessing investments in automated manufacturing systems.
Hudson Corporation is considering three options for managing its data warehouse: continuing with its own staff, hiring an outside vendor to do the managing, or using a combination of its own staff and an outside vendor. The cost of the operation depends on future demand. The annual cost of each option (in thousands of dollars) depends on demand as follows: If the demand probabilities are 0.2, 0.5, and 0.3, which decision alternative will minimize the expected cost of the data warehouse? What is the expected annual cost associated with that recommendation? Construct a risk profile for the optimal decision in part (a). What is the probability of the cost exceeding $700,000?
An oil refinery finds that it is necessary to treat the waste liquids from a new process before discharging them into a stream. The treatment will cost $30,000 the first year, but process improvements will allow the costs to decline by $3,000 each year. As an alternative, an outside company will process the wastes for the fixed price of $15,000/year throughout the 10-year period, payable at the beginning of each year. Either way, there is no need to treat the wastes after 10 years. Use the annual worth method to determine how the wastes should be processed. The company’s MARR is 10%.
An oil refinery finds that it is necessary to treat the waste liquids from a new process before discharging them into a stream. The treatment will cost $20,000 the first year, but process improvements will allow the costs to decline by $2,000 each year. As an alternative, an outside company will process the wastes for the fixed price of $10,000/year throughout the 9 year period, payable at the beginning of each year. Either way, there is no need to treat the wastes after 9 years. Use the annual worth method to determine how the wastes should be processed. The company's MARR is 10%.
An oil refinery finds that it is necessary to treat the waste liquids from a new process before discharging them into a stream. The treatment will cost $30,000 the first year, but process improvements will allow the costs to decline by $3,000 each year. As an alternative, an outside company will process the wastes for the fixed price of $15,000/year throughout the 12 year period, payable at the beginning of each year. Either way, there is no need to treat the wastes after 12 years. Use the annual worth method to determine how the wastes should be processed. The company's MARR is 5%. a) The AW of the in-house treatment is $ ? b) The AW of the outside treatment is $ ? c) The ? processing is the most economical alternative.
More Info Fund Series Amount Factor Recovery Factor Present Amount Factor Present Worth Factor Present Worth Factor Factor Worth Factor Factor ToFind A Given P To Find F To Find P Given G P/G To Find A Given G To Find F To Find A Given F To Find P To Find P Given P Given F Given A Given A F/P P/F FIA PIA A/F A/P A/G 1.0500 0.9524 1.0000 0.9524 1.0000 1.0500 0.0000 0.0000 1.1025 0.9070 2.0500 0.4878 0.3172 1.8594 0.5378 0.9070 0.4878 al 3 1.1576 0.8638 3.1525 2.7232 0.3672 2.6347 0.9675 4. 1.2155 0.8227 4.3101 3.5460 0.2320 0.2820 5.1028 1.4391 1.2763 0.7835 5.5256 4.3295 0.1810 0.2310 8.2369 1.9025 6. 1.3401 0.7462 6.8019 5.0757 0.1470 0.1970 11.9680 2.3579 1.4071 0.7107 8.1420 5.7864 0.1228 0.1728 16.2321 2.8052 8. 1.4775 0.6768 9.5491 6.4632 0.1047 0.1547 20.9700 3.2445 1.5513 0.6446 11.0266 7.1078 0.0907 0.1407 26.1268 3.6758 10 1.6289 0.6139 12.5779 7.7217 0.0795 0.1295 31.6520 4.0991 11 1.7103 0.5847 14.2068 8.3064 0.0704 0.1204 37.4988 4.5144 12 1.7959 0.5568 15.9171 8.8633…
Axdew Limited is considering whether to manufacture an improved, more expensive version of their current line of best-selling lava lamps. Axdew currently spends $15,000 per year on maintenance and $80,000 on full-time salaries for staff. Maintenance costs are expected to remain the same but an additional labourer will need to be hired at an annual cost of $30,000. Manufacture of the newer version will require re-tooling of its existing machinery at a cost of $40,000. Axdew paid consultants a fee of $30,000 for a feasibility study to determine the viability of the new product. Which of the costs discussed above need to be considered by management in deciding whether to proceed with the new product? Justify your answer.
An oil refinery finds that it is necessary to treat the waste liquids from a new process before discharging them into a stream. The treatment will cost $30,000 the first year, but process improvements will allow the costs alternative, an outside company will process the wastes for the fixed price of $15,000/year throughout the 15 year period, payable at the beginning of each year. Either way, there is no need to treat the wastes after 15 years. Use the annual worth method to determine how the wastes should be processed. The company's MARR is 12%. decline by $3,000 each year. As an Click the icon to view the interest and annuity table for discrete compounding when the MARR is 12% per year. The AW of the in-house treatment is S (Round to the nearest dollar) The AW of the outside treatment is S (Round to the nearest dollar.) The processing is the most economical alternative
Difend Cleaners has been considering the purchase of an industrial dry-cleaning machine. The existing machine is operable for three more years and will have a zero disposal price. If the machine is disposed now, it may be sold for $170,000. The new machine will cost $360,000 and an additional cash investment in working capital of $170,000 will be required. The new machine will reduce the average amount of time required to wash clothing and will decrease labor costs. The investment is expected to net $130,000 in additional cash inflows during the first year of acquisition and $290,000 each additional year of use. The new machine has a three-year life, and zero disposal value. These cash flows will generally occur throughout the year and are recognized at the end of each year. Income taxes are not considered in this problem. The working capital investment will not be recovered at the end of the asset's life. What is the net present value of the investment, assuming the required rate of…
An automobile manufacturer is considering a change in an assembly line that should save moneyby reducing labor and material cost. The change involves the installation of four new robots thatwill automatically install windshields. The cost of the four robots, including installation and initial programming, is $400,000. Current practice is to amortize the initial cost of robots over two years on a straight-line basis. The process engineer estimates that one full-time technician will be needed to monitor, maintain, and reprogram the robots on an ongoing basis. This person will cost approximately $60,000 per year. Currently, the company uses four full-time employees on this job and each makes about $52,000 per year. One of these employees is a material handler, and this person will still be needed with the new process. To complicate matters, the process engineer estimates that the robots will apply the windshield sealing material in a manner that will result in a savings of $0.25 per…
Jackson Inc. disposes of other companies’ toxic waste. Currently, Jackson loads the waste by handinto a truck, which requires labor of $20 per load. Jackson is considering a machine that wouldreduce the amount of time needed to load the waste. The machine would cost $200,000 but wouldreduce labor cost to $5 per load. Assume that Jackson averages 10,000 loads per year. How manyyears (rounded to 2 decimal places) would it take for Jackson to recover the cost of the new machine?