Question: Alpha Engineering invested $30 million using a

> 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 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 that as the bed size increases, the net income increases, but he is uncertain whether the incremental expendit

> 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.

> 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?

> Three alternatives identified as X, Y, and Z were evaluated by the B/C method. The analyst calculated project B/C values of 0.92, 1.34, and 1.29. The alternatives are listed in the order of increasing equivalent total costs. The analyst is not sure wheth

> Solar and conventional power alternatives are available to provide energy for monitoring equipment at a remote irrigation canal site. The estimates associated with each alternative have been developed. Use the B/C method to select one at an interest rate

> Locations under consideration for a border patrol station have their costs estimated by the federal government. Use the B/C ratio method at an interest rate of 6% per year to determine which location to select, if any.

> A state agency is considering two mutually exclusive alternatives for upgrading the skills of its technical staff. Alternative 1 involves purchasing software that will reduce the time required to collect background information on each client. The total c

> A process control manager is considering two robots to improve materials handling capacity in the production of rigid shaft couplings that mate dissimilar drive components. Robot X has a first cost of $84,000, an annual M&O cost of $31,000, a $40,000 sal

> The city engineer and economic development directors are evaluating two sites for construction of a multipurpose sports arena. The sites are downtown (DT) and southwest (SW) of the metropolitan area. The city already owns enough land at the DT site; howe

> Two alternatives, identified as X and Y, are evaluated using the B/C method. Alternative Y has a higher total cost than X. If the B/C ratios are 1.2 and 1.0 for alternatives X and Y, respectively, which alternative should be selected? Why?

> When red light cameras are installed at high-risk intersections, rear-end collisions go up, but all other types of accidents go down, including those involving pedestrians. Analysis of traffic accidents in a northwestern city revealed that the total numb

> In United States airspace, the average number of commercial aircraft in the sky on an average morning is 4000. There are another 16,000 planes on the ground. Aerospace company Rockwell-Collins developed what it calls a “digital parachute,” a panic-button

> Calculate the B/C ratio for the following cash flow estimates at a discount rate of 10% per year. Is the project justified? Item……………………………… Estimate PW of benefits, $...................... 3,800,000 AW of disbenefits, $/year…………. 45,000 First cost, $...

> The B/C ratio for a mosquito control program proposed by the Harris County Department of Health is reported to be 2.1. The person who prepared the report stated that the annual health benefits were estimated to be $400,000, and that disbenefits of $25,00

> A consultant, after 3 months of work, reported that the modified B/C ratio for a city-owned hospital heliport project is 1.7. If the initial cost is $1 million and the annual benefits are $150,000, what is the amount of the annual M&O costs used in the c

> An Army Corps of Engineers project for improving navigation on the Ohio River will have an initial cost of $6,500,000 and annual maintenance of $130,000. Benefits for barges and paddle wheel touring boats are estimated at $820,000 per year. The project i

> A rural, agriculture-based city that has 17,000 households is required to install treatment systems for the removal of arsenic and other harmful chemicals from its drinking water. The annual cost is projected to be $150 per household per year. Assume tha

> The State Highway Department is considering a bypass loop that is expected to save motorists $820,000 per year in gasoline and other automobile each year. The cost of the loop will be $9,000,000. (a) Calculate the conventional B/C ratio using an interest

> The annual revenues (in $1000 units) associated with several large apartment complexes are $0, $350, $290, $460, $150, and $320 for years 0, 1, 2, 3, 4, and 5, respectively. Determine (1) whether each cash flow series is conventional or nonconventional,

> The State Legislative Budget Board approved adding 4000 surveillance cameras along the 800-mile Texas-Mexico border from El Paso to Brownsville at a cost of $300 per camera. In addition to the cost of the cameras, manpower and other resources are expecte

> The B/C ratio for a flood control project along the Swanee River was calculated to be 1.3. If the benefits were $500,000 per year and the maintenance costs were $200,000 per year, determine the initial cost of the project at an interest rate of 7% per ye

> As part of the rehabilitation of the downtown area of a southern U.S. city, the Parks and Recreation Department expects to develop the space below several overpasses into basketball, handball, miniature golf, and tennis courts. The estimates are: initial

> The National Environmental Protection Agency has established that 2.5% of the median household income is a reasonable amount to pay for safe drinking water. For a median household income of $45,000 per year, what would the health benefits have to be (in

> Officials from the City of Galveston and State of Texas gathered to celebrate the start of a beach restoration project that involves dumping sand and adding antierosion structures. The first cost of the project is $30 million with annual maintenance esti

> The estimated annual cash flows for a proposed municipal government project are costs of $750,000 per year, benefits of $900,000 per year, and disbenefits of $225,000 per year. Calculate the conventional B/C ratio at an interest rate of 6% per year and d

> What is the primary purpose of a public sector project?

> If alternative A has i * A = 10% and alternative B has i * B = 18% per year, what is known about the rate of return on the increment between A and B if the investment required in B is (a) larger than that required for A, and (b) smaller than that require

> A food processing company is considering two types of moisture analyzers. Only one can be selected. The company expects an infrared model to yield a rate of return of 27% per year. A more expensive microwave model will yield a rate of return of 19% per y

> If the sum of the incremental cash flows is negative, what is known about the rate of return on the incremental investment?

> Konica Minolta plans to sell a copier that prints documents on both sides simultaneously, cutting in half the time it takes to complete big commercial jobs. The faster copier is expected to increase profit by $2,500,000 per year, regardless of which of t

> Ten years ago, DEWA, an electricity and water authority, issued $20 million worth of municipal bonds that carried a coupon rate of 6% per year, payable semiannually. The bonds had a maturity date of 25 years. Due to a worldwide recession, interest rates

> A savvy investor paid $6000 for a 20-year $10,000 mortgage bond that had a bond interest rate of 8% per year, payable quarterly. Three years after he purchased the bond, market interest rates went down, so the bond increased in value. If the investor sol

> A $10,000 mortgage bond with a bond interest rate of 8% per year, payable quarterly, was purchased for $9200. The bond was kept until it was due, a total of 7 years. What rate of return was made by the purchaser per 3 months and per year (nominal)?

> During recessionary periods, bonds that were issued many years ago have a higher coupon rate than currently issued bonds. Therefore, they may sell at a premium, a price higher than their face value, because of currently low coupon rates. A $50,000 bond t

> Four years ago, Valero issued $5 million worth of debenture bonds having a bond interest rate of 10% per year, payable semiannually. Market interest rates dropped and the company called the bonds (i.e., paid them off in advance) at a 10% premium on the f

> Janice V. bought a 5% $1000 twenty-year bond for $925. She received a semiannual dividend for 8 years, then sold it immediately after the 16th dividend for $800. What rate of return did she make (a) per semiannual period, and b) per year (nominal)?

> An engineer planning for his child’s college education purchased a zero-coupon corporate bond (i.e., a bond that has no dividend payments) for $9250. The bond has a face value of $50,000 and is due in 18 years. If the bond is held to maturity, determine

> A mortgage bond issued by Automation Engineering is for sale for $8200. The bond has a face value of $10,000 with a coupon rate of 8% per year, payable annually. What rate of return will be realized if the purchaser holds the bond to maturity 5 years fro

> If you receive a $5000 bond as a graduation present and the bond will pay you $75 interest every 3 months for 20 years, what is the bond coupon rate?

> What is the amount and frequency of dividend payments on a bond that has a face value of$10,000 and a coupon rate of 8% per year, payable semiannually?