Samsung Electronics is considering a product expansion of their Galaxy S Series. Two alternatives for the cell phone expansion are summarized below. The company uses a MARR of 8% per year for decisions of this type, Future Worth and Co-terminated assumption is used with study period of 8 years. Which alternative should be recommended and why? Expansion A Expansion B Capital investment Annual revenue Annual expenses $1,000,000 $760,000 $1,250,000 $580,000 $500,000 $360,000 Salvage value Useful life $100,000 $150,000 6 years 8 years

Samsung Electronics is considering a product expansion of their Galaxy S Series. Two alternatives for the cell phone expansion are summarized below. The company uses a MARR of 8% per year for decisions of this type, Future Worth and Co-terminated assumption is used with study period of 8 years. Which alternative should be recommended and why? Expansion A Expansion B Capital investment Annual revenue Annual expenses $1,000,000 $760,000 $1,250,000 $580,000 $500,000 $360,000 Salvage value Useful life $100,000 $150,000 6 years 8 years

Managerial Economics: Applications, Strategies and Tactics (MindTap Course List)

14th Edition

ISBN:9781305506381

Author:James R. McGuigan, R. Charles Moyer, Frederick H.deB. Harris

Publisher:James R. McGuigan, R. Charles Moyer, Frederick H.deB. Harris

Chapter17: Long-term Investment Analysis

Section: Chapter Questions

Problem 10E

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What is the best alternative using incremental Analysis? Use MARR = 15% A B C Capital Investment $ 2,000 7,000 4,200 Annual Revenues 3,200 8,000 6,000 Аппиal Costs 2, 100 5, 100 4,000 Market Value at the end of useful life 100 600 420 Useful Life (in years) 10 10 10 The correct ranking of Alternative is Blank 1 Select Alternative Blank 2 Note: Do not put comma, unit of measure and limit your answer to two decimal places. Ex: A-B-C
For the project with cash flow given below find the most sensitive factor among annual benefit, annual cost and salvage value if the changes by ±20%. Initial investment Annual revenue Annual Cost Salvage Value MARR Life in years Project Rs.2,00,000 Rs.1,00,000 Rs. 40,000 Rs. 50,000 10% 5
2. Two alternatives, a flexible manufacturing cell and fixed automation, have different cost and revenue characteristics as follows: Flexible Cell Fixed Automation Investment S2,500,000 б уears S800,000 in first year; increasing by $100,000 each year thereafter $300,000/year $1,500,000 3 years S800,000/year Life Gross cash savings s100,000 in the first year; decreasing to S80,000 in second year and S70,000 in third year Cash disbursement MARR 20% 20% Assuming "repeatability" and service needed for 6 years, show which alternative is preferred using the method of rate of return.
Use Present Worth Analysis to determine whether Alternative A or B should be chosen. Items are identically replaced at the end of their useful lives. Assume an interest rate of 6% per year, compounded annually. Alternative A Alternative B Initial Cost Annual Benefit Salvage Value Useful Life (yrs) 400 40 170 2 1,000 48 257 3 O Alternative A, because it costs $736.29 less than Alternative B, in terms of present worth Alternative B, because it costs $736.29 more than Alternative A, in terms of present worth Alternative A, because its present worth is positive Alternative B, because it only incurs the initial cost once every three years instead of every two years
5. For the cash flows shown below, use an annual worth comparison to determine which alternative is best at an interest rate of 12% per year compounded monthly. Alternative First Cost, $ Monthly Costs, Smonth 30,000 Cost every 4 years,S Salvage Value,S Life, VrS 60,000 300,000 20,000 900,000 15,000 60,000 200,000 25,000 20 7,000
A project is being planned that has an initial investment at time 0, annual revenuesand expenses, and a salvage value at the end of the project lifespan (20 years). The financialvalues are summarized below:Initial investment amount at time 0 $150,000Estimated annual revenue $34,500 per yearEstimated annual expenses $8,700 per yearEstimated salvage value at end of lifespan $10,000Minimum attractive rate of return (MARR) 15%a. Calculate the capital recovery amount CR(i%).b. Using the annual worth (AW) method, determine whether purchasing the equipmentis economically justified.c. Repeat part (a) using the internal rate of return (IRR) method based on annual worth(AW).d. Using the present worth (PW) method, determine the break-even time period afterwhich purchase of the equipment generates a profit. (Find N when PW = 0) year period.
A Cost $4000 $2000 $6000 $1000 $9000 Annual benefit 639 410 761 117 750 Useful life, in years 20 20 20 20 20 i* 15% 20% 11.1% 9.9% 5.45% Perform incremental ROR analysis to select best one. MARR=6%; (P/A, 6%, 20) = 11.47 %3D
3) A and B are mutually exclusive projects.. What MARR has to be for A to be chosen? A B Initial cost Useful life Annual benefit Salvage value Rate of return $30,000 6 years $8,577 $0 18%lyr $50,000 6 years $8,577 $29,098 12%/yr a) MARR<8.4% b) MARR< 6.4% c) 8.4%
Use Present Worth Analysis to determine whether Alternative A or B should be chosen. Items are identically replaced at the end of their useful lives. Assume an interest rate of 10% per year, compounded annually. Alternative A Alternative B Initial Cost 490 1,315 Annual Benefit 80 266 Salvage Value 228 451 Useful Life (yrs) 2 3 O Alternative B. because it costs $142.96 more than Alternative A, in terms of present worth O Alternative A, because it costs $142.96 less than Alternative B, in terms of present worth Alternative A. because its present worth is positive Alternative B, because it only incurs the initial cost once every three years instead of every two years
Question 4 Complete the following analysis of cost alternatives and select the preferred alternative. The study period is 10 years and the MARR = 12% per year. "Do Nothing" is not an option. A B C D $15,000 $16,000 $13,000 $18,000 Capital investment Annual costs 250 300 500 100 Market value 1,000 1,300 1,750 2,000 at EOY 10 FW(12%) -$49.975-$53,658 ???-$55,660
a. The PW of the Gas Heating Option is b. The PW of the Geothermal Heating Option is c. The lower cost alternative is the geothermal heating option
Buying Equipment 1 from XYZ company and company ABC will give the production similar productivity input of 400,000.00 per year. The equipment from company XYZ has a purchase price of 200,000.00, annual maintenance of 5,000.00, and production life of 10 years, while the equipment from company ABC has a purchase price of 100,000.00, annual maintenance of 2,000.00, and production life of 12. Using present worth method, what is the present values of their purchase profit? Use MARR of 20%