Question: A recent graduate who wants to start

> TrvlSafe, a manufacturer of air-freightable pet crates with imbedded chips to monitor the health of the pet, has identified two projects that have relatively high risk; however, they are expected to move the company into new revenue markets. Utilize a sp

> In Problem 10.38, Mosaic Software could invest $10,000,000 over a 6-year period with a net cash flow estimate of $1,115,000 per year. The equity portion of the investment will cost 9.25% per year; however, the debt portion can vary from 20% to 80% of the

> Financing plans for a project are summarized below for Encore Productions. (a) Plot the WACC and indicate the D-E mix with the lowest WACC. (b) Yesterday, the president of Angkor Bank, the bank that usually makes loans to Encore, informed the CFO that in

> In a one-year-later replacement analysis, if all estimates are still current and the year is nD, the action that should be taken is: (a) Keep the defender 1 more year (b) Replace the defender with the challenger (c) Look for a new challenger and calculat

> Determine if a definitive decision on lighting can be determined by doing the following: Use a benefit/cost analysis to compare the four alternatives to determine if any are economically justified.

> The economic service life of an asset is: (a) The length of time required to recover the first cost of the asset (b) The time when the operating cost is at a minimum (c) The time when the salvage value goes below 25% of the first cost (d) The time when t

> A replacement analysis is most objectively conducted from the viewpoint of: (a) An outsider (b) A consultant (c) A nonowner (d) Any of the above

> Halcrow, Inc. expects to replace a downtime tracking system currently installed on CNC machines. The challenger system has a first cost of $70,000, an estimated AOC of $20,000 the first year increasing by 20% per year thereafter, a maximum useful life of

> An existing process involving polymers that reduce friction loss in engines is described in Problem 11.37. Assume it is possible to do an augmentation and upgrade to the existing process machinery that will provide a 2-year extension to its useful life.

> First, develop the spreadsheet to confirm the replacement study decision conducted for Randall- Rico Consultants in Problem 11.31. Then answer the questions below posed by Mr. Randall in a meeting when he was informed of the results of the replacement st

> Perform the required analysis of truck-bed sizes in Problem 8.33 using a spreadsheet. Data from problem 8.33 A recent graduate who wants to start an excavation/ earth-moving business is trying to determine which size of used dump truck to buy. He knows t

> A mechanical engineer at Anode Metals is considering five equivalent projects, some of which have different life expectations. Salvage value is nil for all alternatives. Assuming that the company’s MARR is 13% per year, determine which

> Ryan has received cost and salvage value estimates for two competing fire sprinkler systems to be installed in his office building. System A has a first cost of $100,000, annual M&O costs of $10,000, and a $20,000 salvage value after 5 years. System B ha

> In Problem 8.20, two methods of cooling water treatment are analyzed. These are revenue alternatives which generate annual savings against their costs. (a) Perform the complete procedure for incremental ROR analysis for revenue alternatives to determine

> Kleen Corp., a privately owned and operated single-stream recycling facility, has annual contracts with several cities in the Tri-County Metropolitan Area. Kleen Corp. wants to add a new set of sensors to its existing machinery that will separate plasti

> What would the lighted, night-to-day accident ratio have to be to make alternative Z economically justified by the B/C ratio?

> For the net cash flow series shown, (a) apply the two rules of sign change, (b) find the external rate of return using the ROIC method at an investment rate of 15% per year, and (c) determine an i* using the IRR function with and without the ROIC determi

> For the cash flows shown, determine: (a) the number of possible i* values (b) the i* value displayed by the IRR function (c) the external rate of return using the MIRR method if ii = 18% per year and ib = 10% per year.

> For the net cash flow series, (a) determine the number of possible i* values using the two sign tests, (b) find the EROR using the MIRR method with an investment rate of 20% per year and a borrowing rate of 10% per year, and (c) use the MIRR function to

> Profit and loss (in $1000 units) associated with the sale of a vision-guided machine tool loading system and the resulting NCF amounts are recorded. (a) Use sign-change rules to determine the possible number of i* values. (b) Find all i* values between 0

> There are two potential locations to construct an urgent care walk-in clinic to serve rural residents. The DN alternative is an option since the clinic is not a requirement; it would be a convenience for future patients. When incremental B/C analysis was

> For the FOUNDATION Fieldbus H1 installation analyzed in Problem 9.27, do the following: (Data is repeated below.) (a) Find the PI for the first 6 years of operation. (b) Find the required ΔNCF for next year if Dickinson plans to invest an add

> Consider the four independent projects outlined below. At 5% per year and a 15-year study period, (a) determine which projects are acceptable, and (b) the value of the annual M&O cost to make any nonacceptable project acceptable with a B/C ratio of a

> Use the estimates from Problem 9.39 (repeated below) to answer the questions asked concerning the extraction of rare metals in a National Wildlife Preserve. Utilize the B/C method, a 5-year study period, and a discount rate of 10% per year. The monetary

> What do you think of these suggestions from the plant superintendent and the line manager?

> Assume you are an investor with a large amount of ready cash, looking for an innovative solar energy product. What amount would you be willing to offer for the business at this point (end of year 12) if you require a 12% per year return on all your inves

> Consider the cash flow series over the 12 years. Is there any indication that multiple rates of return may be present? If so, use the spreadsheet already developed to search for ROR values in the range ±100% other than the one determined in exercise 3 ab

> Arc-bot Technologies, manufacturers of six-axis, electric servo-driven robots, has experienced the cash flows shown in a shipping department. (a) Determine the number of possible rate of return values. (b) Find all i* values between 0 and 100%.

> How many property-damage accidents could be prevented on the unlighted portion if it were lighted?

> Discuss the possibility of multiple rate of return values for all the actual and incremental cash flow series. Find any multiple rates in the range of 0% to 100%.

> If the MARR = 12%, which server should be selected? Use the PW or AW method to make the selection.

> The production of polyamide from raw materials of plant origin, such as castor oil, requires 20% less fossil fuel than conventional production methods. Darvon Chemicals borrowed $6 million to implement the process. If the interest rate on the loan is 10%

> A small industrial contractor purchased a warehouse building for storing equipment and materials that are not immediately needed at construction job sites. The cost of the building was $100,000 and the contractor has just made an agreement with the selle

> Assume alternatives A and B are being evaluated by the rate of return method against a MARR of 15% per year. Alternative B requires a higher initial investment than A and the i* values are i * A = 20% and i * B = 16% per year. Under what circumstance is

> A to Z Mortgages made a home equity loan to your friend. For a 4-year loan of $10,000 at 10% per year, what annual payment must he make to pay off the entire loan in 4 years if interest is charged on (a) the original principal amount of $10,000, and (b)

> A $10,000 loan amortized over 5 years at an interest rate of 10% per year requires payments of $2638 to completely remove the loan when interest is charged on the unrecovered balance of the principal. If interest is charged on the original principal inst

> What is (a) the highest, and (b) lowest rate of return (in percent) possible?

> Equipment that was purchased by Newport Corporation for making pneumatic vibration isolators cost $90,000 two years ago. It has a market value that can be described by the relation $90,000 − 8000k, where k is the years from time of purchase. The operatin

> A third-year college friend of yours opened Mike’s Bike Repair Shop when he was a freshmen working on a sociology degree. He shared his NCF figures for the 3 years, including the $17,000 amount that it took to get started in business. (a) Determine the n

> A machine tool purchased 2 years ago for $40,000 has a market value best described by the relation $40,000 − 3000k, where k is the number of years from time of purchase. Experience with this type of asset has shown that its annual operating cost is descr

> A mechanical engineer who designs and sells equipment that automates manual labor processes is offering a machine/robot combination that will significantly reduce labor costs associated with manufacturing garage-door opener transmitters. The equipment ha

> A machine purchased 1 year ago for $85,000 costs more to operate than anticipated. When purchased, the machine was expected to be used for 10 years with annual maintenance costs of $22,000 and a$10,000 salvage value. However, last year, it cost the compa

> Because it fumes at room temperatures, hydrochloric acid creates a very corrosive work environment. A machine, working in that environment, is deteriorating fast and can be used for only 1 more year, at which time it will be scrapped with no salvage valu

> You, an engineer, and an attorney friend, Rob, started a small business 3 years ago to do energy audits for small businesses. A piece of equipment that costs $25,000 then has become prematurely obsolete and needs to be replaced with a solid state version

> Huntington Medical Center purchased a used lowfield MRI scanner 2 years ago for $445,000. Its operating cost is $272,000 per year and it can be sold for $150,000 anytime in the next 3 years. The Center’s director is considering replacing the presently ow

> An electric company must decide between two options for managing the blowdown water from its cooling tower. Option 1 is to continue the lease on 50 acres of land for another 5-year period and dispose of the water by spray irrigation. The landowner will m

> The estimated future market values and M&O costs for an in-place backup generator at MediCare Hospital and a possible replacement are shown below. Mrs. Jamison, Hospital Director, told you that she is interested only in what happens over the next 3 y

> In a replacement analysis, what number should be used as the first cost for the currently owned asset? How is this value best obtained?

> A textile processing company is evaluating whether it should retain the current bleaching process that uses chlorine dioxide or replace it with a proprietary oxypure process. The relevant information for each process is shown. Use an interest rate of 15%

> A small company that manufactures vibration isolation platforms is trying to decide whether it should replace the current assembly system (D), which is rather labor intensive, now or 1 year from now with a system that is more automated (C). Some componen

> Three years ago, Witt Gas Controls purchased equipment for $80,000 that was expected to have a useful life of 5 years with a $9000 salvage value. Increased demand necessitated an upgrade costing $30,000 one year ago. Technology changes now require that t

> An engineer with Calahan Technologies calculated the AW of cost values shown for a presently owned machine, using estimates she obtained from the vendor and company records. Retention Period, Years……………… AW of Costs, $ per Year 1…………………………………. −92,000 2

> What is meant by the opportunity-cost approach for a replacement study?

> If a replacement study is performed and the defender is selected for retention for nD years, explain what should be done 1 year later if a new challenger is identified.

> List three reasons why a replacement study might be needed.

> What is the fundamental difference between the AW analysis that you learned in Chapter 6 and the AW-based replacement analysis that you are learning in this chapter?

> From the data shown, determine the ESL of the asset.

> From the data shown, determine the economic service lives of the defender and challenge.

> The AW values for retaining a presently owned machine for additional years are shown in the table. Note that the values represent the AW amount for each of the n years that the asset is kept, that is, if it is kept 5 more years, the annual worth is $95,0

> A cutting-edge product of Continental Fan had the following net cash flow series (in $1000 units) during its first 5-year period on the market. Find all rate of return values between 0% and 100%. Year………………………………… Net Cash Flow, $ 0…………………………………………………. −

> Briefly explain what is meant by the defender/ challenger concept.

> State whether each of the following involves debt financing or equity financing: (a) A bond issue for $3,500,000 by a city-owned Utility (b) An initial public offering (IPO) of $35,000,000 in common stock for a dot-com company (c) $31,000 taken from your

> The owner of a small pipeline construction company wants to determine how much he should bid in his attempt to win his first “big” contract. He estimates that his cost to complete the project will be $7.2 million in PW equivalency. He wants to bid an amo

> Lodi Enterprises uses an after-tax MARR of 15% per year. If the company’s effective tax rate (federal, state, and local taxes) is 38%, determine the company’s before-tax MARR.

> A committee of four people submitted the following statements about the attributes to be used in a weighted attribute evaluation. Use the statements to determine the normalized weights of each attribute if scores are assigned between 0 and 10, with 10 in

> Jill rank-ordered 10 attributes in increasing importance and identified them as A, B, …, J, with a value of 1 assigned to A, 2 to B, etc. (a) What is the sum of the scores? (b) What is the weight for attribute D? (c) Answer the two questions above if Jil

> A company executive assigned importance values between 0 and 100 to five attributes included in an alternative evaluation process. Determine the weight of each attribute using the importance scores. Attribute, i……………… Importance Score, si 1. Safety………………

> Three alternatives are being evaluated based on six different attributes, all of which are considered of equal importance. (a) Determine the weight to assign to each attribute. (b) Write the equation used to calculate the weighted attribute measure Rj fo

> After 15 years of employment in the airline industry, John started his own consulting company to use physical and computer simulation in the analysis of commercial airport accidents on runways. He estimates his average cost of new capital at 8% per year

> The engineering manager at FXO Plastics wants to complete an alternative evaluation study. She asked the finance manager for the corporate MARR. The finance manager gave her some data on the project and stated that all projects must clear their average (

> Jenco Electric manufactures washdown adjustable speed drives in open loop, encoderless, and closedloop servo configurations. The net cash flow associated with one phase of the production operation is shown below. (a) Determine the possible rate of retur

> H2W Technologies is considering raising capital to expand its offerings of 2-phase and 4-phase linear stepper motors. The beta value for its stock is high at 1.41. Use the capital asset pricing model and a 3.8% premium above the risk-free return to deter

> When the risk-free return is 3.5%, what is the cost of equity capital for a company whose stock has a historical beta factor of 0.92 and the security market indicates that the premium above the risk-free rate is 5%?

> What dividend growth rate would be required to produce a cost of equity capital of 8% when the common stock price is $140 per share and the dividend is $4.76 per share?

> BBK Industries plans to sell 2 million shares of its common stock for $80 per share, with an annual dividend of $1.90 per share. Determine the lower cost of equity capital under the following conditions: (a) The company expects a dividend growth rate of

> For each of the following factors, state if it will raise or lower the MARR: (a) Higher risk (b) Company wants to expand into a competitor’s area (c) Higher corporate taxes (d) Limited availability of capital (e) Increased market interest rates ( f ) Gov

> Harris International currently pays a dividend of $3.24 per share on its preferred stock that sells for $54 per share. In order to raise capital to purchase a smaller competitor, the company plans to issue 2.7 million shares of preferred stock at a 10% d

> Which form of financing has the lower after-tax cost, debt or equity? Why?

> Engineers at a semiconductor company developed an improved front-end-of-line (FEOL) formulation process that requires an investment of $6 million. The company plans to issue $6 million worth of 10-year bonds that will pay interest of 6% per year, payable

> To understand the advantage of debt capital from a tax perspective in the United States, determine the beforetax and approximated after-tax weighted average costs of capital if a project is funded 40%–60% with debt capital borrowed at 9% per year. A rece

> State how the opportunity cost sets the MARR when, because of limited capital, only one alternative can be selected from two or more.

> One of your employees presented you the cash flow estimates (in $1000 units) for a new method of manufacturing box cutters for a 2-year period. (a) Apply the rule of signs to determine the maximum number of possible i* values at aMARR of 5% per quarter.

> The rate of return now at the end of year 12.

> Determine the WACC for Delta Corporation, which manufactures miniature triaxial accelerometers for space-restricted applications. The financing profile, with interest rates, is as follows: $3 million in stock sales at 8% per year, $4 million in bonds at

> Two public corporations, First Engineering and Midwest Development, each show capitalization of $175 million in their annual reports. The balance sheet for First indicates total debt of $87 million, and that of Midwest indicates net worth of $62 million.

> Alpha Engineering invested $30 million using a D-E mix of 65%–35% for the development, marketing, and delivery of a web-based training program for project management. Determine the return on the company’s equity if the net income from the sale of the pro

> A public corporation in which you own common stock reported a WACC of 10.7% for the year in its annual report to stockholders. The common stock that you own has averaged a total return of 6% per year over the last 3 years. The annual report also mentions

> Seven different financing plans with their D-E mixes and costs of debt and equity capital for a new innovations project are summarized below. Use the data to determine what mix of debt and equity capital will result in the lowest WACC.

> Tiffany Baking Co. wants to arrange for $37.5 million in capital for manufacturing a new baked potato chip product line. The current financing plan is 60% equity and 40% debt capital. Calculate the expected WACC for the following financing scenario: Equi

> Nano-Technologies bought out RT-Micro using financing as follows: $16 million from mortgages, $4 million from retained earnings, $12 million from cash on hand, and $30 million from bonds. Determine the debt-to-equity mix.

> Nucor Corp. manufactures generator coolers for nuclear and gas turbine power plants. The company completed a plant expansion through financing that had a debt/equity mix of 40%–60%. If $15 million came from mortgages and bond sales, what was the total am

> Identify the two primary sources of capital and state what is meant by each.

> Where is the salvage value placed in a conventional B/C ratio? Why? How is it handled mathematically?

> Alternative R has a first cost of $100,000, annual M&O costs of $50,000, and a $20,000 salvage value after 5 years. Alternative S has a first cost of $175,000 and a $40,000 salvage value after 5 years, but its annual M&O costs are not known. Determine th

> List two advantages of a public-private partnership (PPP).

> Identify the following as primarily private or public sector characteristics: (a) Large investment (b) No profits (c) Funding from fees (d) MARR-based selection criteria (e) Low interest rate (f) Short project life estimate (g) Disbenefits

> Since transportation via automobile was introduced, drivers throughout the country of Yalturia in Eastern Europe have driven on the left side of the road. Recently, the Yalturian National Congress passed a law that within 3 years, a righthand driving con

> During the design and development stages of a remote meter reading system for residential electricity use, the two engineers working on the project for the City of Forest Ridge noted something different than they expected. The first, an electrical/ softw

> You have been requested to compare four mutually exclusive alternatives using the B/C method and the results shown. Which alternative, if any, do you recommend?

> Four mutually exclusive, direct benefit alternatives are compared using the B/C method. Which alternative, if any, should be selected?