Knorr & Associates paid total taxes of $72,000 in the first year of their consulting business. (a) What was the company’s taxable income? (b) What was the average tax rate? (c) What was the estimated NOPAT for the year?
> An asset with a first cost of $300,000 is depreciated by the MACRS method using a 5-year recovery period. Determine the economic value added in year 2, if the net operating profit after taxes is $70,000 and the company uses an after-tax MARR of 15% per y
> (a) What does the term economic value added (EVA) mean relative to the bottom line of a corporation? (b) Why might an investor in a public corporation prefer to use the EVA estimates over the CFAT estimates for a project?
> The variable Y is defined by the relation 3n for n = 1, 2, 3, 4 with probabilities of 0.4, 0.3, 0.233, and 0.067, respectively. Determine the expected value of Y.
> Thermtech Science has performed an economic analysis of proposed service in a new region of the country. The three-estimate approach to sensitivity analysis has been applied. The optimistic and pessimistic values each have an estimated 15% chance of occu
> Are the PW values sensitive to varying life estimates?
> The cost of flood damage from significant storms varies as a function of the severity of the storm. Estimate the expected flood damage due to the next significant storm.
> In the recent past, the production output has been between 10,000 and 20,000 units per week 75% of the time; however, it may fall below 10,000 or go above 20,000 more frequently in the future. The production manager wants to use E(output) to make a decis
> For each situation below, determine (1) if the variable(s) is(are) discrete or continuous, and (2) if the information involves certainty, risk, and/or uncertainty. (a) A friend in real estate tells you the price per square foot for new houses will go up
> Identify the following variables as either discrete or continuous: (a) The number of times heads comes up in 100 tosses of a coin (b) The number of accidents occurring in a specified section of a freeway (c) The weight of boxes shipped from an Amazon war
> The defender in a multiple-effect solar cell manufacturing plant has a market value of $130,000 and expected annual operating costs of $70,000 with no salvage value after its remaining life of 3 years. The depreciation charges for the next 3 years will b
> The last annual report of Harrison Engineering’s 3-D Imaging Division showed GI = $4.9 million, OE = $2.1 million, and D = $1.4 million. If the average federal tax rate is 31% and state/local tax rates total 9.8%, estimate (a) federal income taxes, and (
> Four mutually exclusive alternatives are evaluated using three estimates or strategies (pessimistic, most likely, and optimistic) for several parameters. The resulting PW values over the LCM are determined as shown. If none of the strategies is more like
> Four mutually exclusive alternatives are evaluated using three estimates or strategies (pessimistic, most likely, and optimistic) for several parameters. The resulting PW values over the LCM are determined as shown. The best alternative to select under t
> A real options analysis is most valuable when: (a) The risk is low and stakes are high (b) The stakes are low and risk is high (c) The stakes are high and risk is high (d) The stakes are low and risk is low
> A decision tree includes all of the following except: (a) Probability estimates for each outcome (b) Measure of worth as the selection criterion (c) Expected results from a decision at each stage (d) The MARR
> Prepare the simulation using a spreadsheet; determine which of the vendors offers the best machine from an economic perspective, and take into account the estimates made by Dr. Knox. Use a sample size of at least 50, and base your conclusions on the AW m
> A recent sensitivity analysis of a public works project indicates that the expected present worth is $83,000. If there is a 20% chance that the PW will be the pessimistic one of $45,000 and 50% chance that it will be the most likely one of $72,000, the o
> Revenue into the general fund of the state of Texas for any biennium is highly dependent on the price of oil. At a price average of $50 per barrel, general revenue will be $95 billion. At $68 and $75 per barrel, the revenue will be $118 billion and $125
> When conducting a sensitivity analysis using three estimates for each parameter, all of the following are estimates that should be made, except: (a) Pessimistic (b) Improbable (c) Optimistic (d) Most likely
> When the sensitivity of several parameters is considered for one alternative using a single measure of worth and the measure of worth is plotted against percentage change for each parameter, the resulting graph is called a: (a) Spider graph (b) Distribut
> In conducting a sensitivity analysis of a proposed project, the present worth values of $–10,000, $40,000, and $50,000 were believed to have chances of 25%, 40%, and 35%, respectively. The expected PW is closest to: (a) $19,000 (b) $26,000 (c) $28,500 (d
> When the measure of worth is plotted versus percentage change for several parameters, the parameter that is the most sensitive in the economic analysis is the one: (a) That has the steepest curve (b) That has the flattest curve (c) With the largest prese
> All of the following are steps in the procedure for conducting a sensitivity analysis, except: (a) Determine which parameters might vary from the most likely estimated value (b) Change the parameters in the range of −100% to +100% (c) Select a measure of
> In evaluating the sensitivity of an alternative to its first cost, its AW was calculated for changes in the estimated first cost by –10%, +5%, and +15%. The resulting AW values were $+21,000, $–2410, and $–34,000, respectively. On the basis of these valu
> Freeman Engineering paid $28,500 for specialized equipment for use with their new GPS/GIS system. The equipment was depreciated over a 3-year recovery period using MACRS depreciation. The company sold the equipment after 2 years for $5000 when it purchas
> A couple of years ago, the company Health4All purchased land, a building, and two depreciable assets from another corporation. These have all recently been disposed of. Use the information shown to determine the presence and amount of any capital gain, c
> After deciding on the 50-50 split of debt and equity financing, Charles wants to know what additional bottomline contributions to the economic worth of the company may be added by the new Victoria site. What are the best estimates at this time?
> Global Foundries (GF), a privately held company that invests in companies producing essential components for high-volume data storage, is valued at $4.0 billion dollars. A computer company that wants to get into cloud computing is considering the purchas
> A touch-sensitive assembly robot that costs $300,000 had a depreciable life of 5 years with an expected $50,000 salvage value when purchased 3 years ago. Using MACRS depreciation, determine any DR, CG, or CL if the company sold the robot after 3 years fo
> (a) Use the RAND function in Excel© to generate 100 values from a U(0,1) distribution. Calculate the average and compare it to 0.5, the expected value for a random sample between 0 and 1. (b) For the RAND function sample, cluster the results into cells o
> The dispersion of values about the sample average is represented by the: (a) Variance (b) Expected value (c) Probability distribution (d) Standard deviation
> A survey of the types of cars parked at an NFL football stadium revealed that there were equal probabilities of finding cars identified as Type A, B, C, and D. If Type A cars were assigned random numbers 0 through 24, Type B numbers 25 through 49, Type C
> The net revenue from a candy product called Mummies- Lite has averaged $15,000 per month for the past 12 months. If the value of Σ(Xi −X )2 is $4,680,000, the standard deviation value is closest to: (a) $381 (b) $652 (c) $958 (d) $1265
> For the income and probability values shown, the probability that the income in any year will be greater than $8500 is closest to: (a) 0.38 (b) 0.49 (c) 0.70 (d) 0.92
> The following temperatures (in oF) were recorded inside the building of a remote pumping station: 99, 87, 93, 90, and 96. The variance of these readings is closest to: (a) 11.7 (b) 22.5 (c) 31.1 (d) 38.6
> In a table of two-digit random numbers, the probabilities of 0.16 to 0.20 can be represented by the numbers: (a) 16 to 20 (b) 0 to 4 (c) 1 to 5 (d) 15 to 19
> The shipping costs for fresh fruit items have been estimated and assigned the probabilities shown below. The expected value of the shipping costs is closest to: (a) $36.33 (b) $39.21 (c) $41.28 (d) $45.11
> Charles noticed that the CFAT total and PW values go in opposite directions as the equity percentage increases. He wants to know why this phenomenon occurs. How should you explain this to Charles?
> When there are at least two values for a parameter and it is not possible to estimate the chance that each may occur, this situation is known as: (a) Uncertain (b) Risk (c) Deterministic (d) Cost estimating
> When single-value or single-point estimates are used exclusively in an economic analysis, the decision-making process is said to be: (a) Probabilistic (b) Uncertain (c) Deterministic (d) Monte Carlo
> Equipment associated with manufacturing small railcars had a first cost of $180,000 with an expected salvage value of $30,000 at the end of its 5-year life. The revenue was $620,000 in year 2, with operating expenses of $98,000. If the company’s effectiv
> Explain why minimizing PW of taxes is equivalent to maximizing PW of depreciation when corporate taxes are calculated.
> There are four estimates made for the anticipated cycle time to produce a subcomponent. The estimates, in seconds, are 10, 20, 30, and 70. If the first two estimates have equal weights, which total 70%, and the last two are weighted equally with the rema
> A discrete variable T can take on integer values of 1 to 5. A sample of size 100 results in the following probability estimates: (a) Use the 40 random numbers (RN) below to estimate the probabilities for each value of T, and (b) determine the sample prob
> An online patient diagnostics system for surgeons has the following point estimates: A first cost of $200,000 to install and $5000 annually to maintain over its expected life of 5 years. Added revenue is estimated to average $60,000 per year. Examine the
> An online patient diagnostics system for surgeons has the following point estimates: A first cost of $200,000 to install and $5000 annually to maintain over its expected life of 5 years. Added revenue is estimated to average $60,000 per year. Examine the
> An online patient diagnostics system for surgeons has the following point estimates: A first cost of $200,000 to install and $5000 annually to maintain over its expected life of 5 years. Added revenue is estimated to average $60,000 per year. Examine the
> Estimate the gross income for Lopez Enterprises when it had a CFAT of $2.5 million, $900,000 in expenses, $900,000 in depreciation charges, and an effective tax rate of 26.4%.
> Observe the changes in the total 6-year CFAT as the D-E percentages change. If the time value of money is neglected, what is the constant amount by which this sum changes for every 10% increase in equity funding?
> If PSK Engineering had a CFAT of $750,000, charged depreciation of $400,000, and had a Te of 36%, what was PSK’s CFBT?
> MAG Industrial needs 1000 square meters of storage space. Purchasing land for $80,000 and erecting a temporary metal building at $70 per square meter is one option. The president expects to sell the land for $100,000 and the building for $20,000 after 3
> Hemisphere Electric may purchase equipment to manufacture a new line of wireless devices for home appliance control. The first cost will be $80,000, and the life is estimated at 6 years with a salvage value of $10,000. Different people in marketing have
> The AW of the current process to make motion controllers is $–62,000 per year. A replacement process under consideration has estimates of P = $64,000, AOC = $38,000, and n = 3 years. Three engineers have given their opinions about what the salvage value
> A company that manufactures high-speed submersible rotary-indexing spindles is considering an upgrade of production equipment to reduce costs over the next 5 years. The company can invest $80,000 now, 1 year from now, or 2 years from now. Depending on wh
> For a corporation that has a taxable income of $250,000, determine (a) the marginal tax rate, (b) the total taxes, and (c) the average tax rate.
> Over a 1-week period, an officer of the state lottery commission sampled ticket purchasers at a single high-traffic location. The amounts labeled W for winnings, distributed back to the purchasers/ winners, and the associated probabilities for 5000 ticke
> An engineer collected monthly operating expenses for the past 3 years for a micro-finishing department. Use the midpoints of each range in preparing your answers. (a) Develop a plot of the probability distribution by hand or using a spreadsheet, as instr
> Royalties received by an investor in an oil well vary according to the price of oil. Data collected from stripper wells in a West Texas oilfield were used to develop the royalty probability relationships shown. (a) Is the variable discrete or continuous
> Repeat Problem 19.26, except use the normal distribution for the CFAT in years 7 through 10 with an expected value of $2 million and a standard deviation of $500,000. Problem 19.26: Jennifer, a senior project manager, estimated net cash flow after taxes
> Jennifer, a senior project manager, estimated net cash flow after taxes (CFAT) for a large project she is working on. The additional CFAT of $2,800,000 in year 10 is the salvage value, estimated at 9% of the $31 million first cost for all capital assets.
> Estimate the CFAT for a company that has taxable income of $120,000, depreciation of $133,350, and an effective tax rate of 35%.
> A newsstand manager is tracking Y, the number of weekly magazines left on the shelf when the new edition is delivered. Data collected over a 30-week period are summarized by the following probability distribution. Use a spreadsheet to plot the distributi
> Calculate the expected value of the variable N in Problem 19.10. Problem 19.10: Bob is working on two separate probabilityrelated projects. The first involves the variable N, which is the number of consecutively filled bottles of an anticancer drug that
> (a) Use the relations in Section 19.4 for continuous variables to determine the expected value and standard deviation for the distribution of f(DY) in Problem 19.11. (b) It is possible to calculate the probability of a continuous variable Y between two p
> A discrete variable Q, extra inventory units, has integer values from 1 to 10. When sampled 100 times, the following observed probability distribution was obtained: (a) Determine the sample average and standard deviation by hand. (b) Determine the sample
> Monthly maintenance costs, MC, for conveyor belts in an airport’s centralized baggage collection and distribution facility are clustered into cell midpoints with associated frequencies as shown. (a) Estimate the expected value and standard deviation of
> In order to determine if air quality readings in a certain assembly plant were within OSHA guidelines, an engineer collected the following data: 108, 99, 84, 93, 80, 90, 83, 83, 96, 85, and 89 ppb (parts per billion). (a) Determine the arithmetic mean (b
> Wastewater samples taken from an industrial discharge had the chemical oxygen demand (COD) concentrations below in mg/L. Determine the arithmetic mean (by hand and spreadsheet), median, (c) mode, and (d) standard deviation (by hand and spreadsheet). COD
> The percent price increase p on a variety of retail food prices over a 1-year period varied from 5% to 10% in all cases. Because of the distribution of the next year is f(X) = 2X 0 ≤ X ≤ 1 where: X = 0 when p = 5% X = 1 when p = 10% For a continuous vari
> Gillian has developed estimates for strengthening the undercarriage on a medium-use, 70-year-old bridge for which there is no budget to replace the bridge for the next 5 years. Estimates are P = $800,000, S = 0, maintenance cost, M&O = $10,000 per ye
> CINESA, a government-owned power company that normally uses natural gas for electricity generation, is purchasing fuels other than natural gas and power from a commercially built wind farm, often at extra costs, which are transferred to the customer. Tot
> What is the basic difference between cash flow after taxes (CFAT) and net operating profit after taxes (NOPAT)?
> The net revenue R for a newly developed antifungal spray for citrus fruit is expected to be $3.1 million per year for the next 5 years. This expected amount is based on estimates that R could be $2.6, $2.8, $3.0, $3.2, $3.4 million, all with the same pro
> A discrete variable X can take on integer values of 1 to 10. A sample of size 50 results in the following probability estimates: (a) Write out and graph the cumulative distribution. (b) Calculate the following probabilities using the cumulative distribut
> Carla is a statistician with a bank. She has collected debt-to-equity mix data on mature (M) and young (Y) companies. The debt percentages vary from 20% to 80%. Carla has defined DM as a variable for the mature companies from 0 to 1, with DM = 0 interpre
> Bob is working on two separate probability related projects. The first involves the variable N, which is the number of consecutively filled bottles of an anticancer drug that weigh in above the weight specification limit. The variable N is described by t
> Free Bird Software has developed partnerships with several large manufacturing corporations to use a Java-derivative software in their consumer and industrial products. A new corporation will be formed to manage these applications. One major project invo
> Triple Play Innovators Corporation (TPIC) plans to offer IPTV (Internet Protocol TV) service to North American customers starting soon. Perform an AW analysis of the EVA series for the two alternative suppliers available for the hardware and software. Us
> Cardenas and Moreno Engineering is evaluating a large flood control program for several southern cities. One component is a 4-year project for a special-purpose transport ship-crane for use in building permanent storm surge protection against hurricanes
> In conducting an EVA analysis for year 2 for new equipment on its primary product line, Analogy, Inc., manufacturers of preassembled blower packages and other water treatment components, determined the EVA to be $28,000. Analogy uses an after-tax interes
> Consider two air-conditioning systems with the estimates below. (a) Use AW analysis to determine the sensitivity of the economic decision to MARR values of 4%, 6%, and 8% per year. (b) Develop the spreadsheet functions that will display the six AW values
> A major equipment purchase is being economically evaluated by a team of three design engineers and one production engineer at Raytheon Aerospace. The agreed-upon estimates are P = $560,000, n = 6 years, and S = $100,000. The group disagrees, however, on
> Identify which of the following items are not included in the calculation of cash flow before taxes, CFBT: life of asset, operating expenses, salvage value, depreciation, initial investment, gross income, tax rate.
> Nuclear safety devices installed several years ago have been depreciated from a first cost of $200,000 to zero using MACRS. The devices can be sold on the used equipment market for an estimated $15,000, or they can be retained in service for 5 more years
> The Los Angeles, California, city engineer is analyzing a for-profit public works project at the port authority using an after-tax replacement analysis of the system installed 5 years ago (defender) and a challenger as detailed below. All values are in $
> Needco Supplies-Canada employee Stella Needleson was asked to determine if the current process of dying writing paper should be retained or a new, environment friendly process should be implemented. Estimates or actual values for the two processes are su
> After 8 years of use, the heavy-truck engine overhaul equipment at Pete’s Truck Repair was evaluated for replacement. Pete’s accountant used an after-tax MARR of 8% per year, Te of 30%, and a current market value of $25,000 to determine AW = $2100. The n
> Perform a PW-based after-tax replacement study from the information shown below using an after tax MARR of 12% per year, Te of 35%, and a study period of 4 years. All monetary values are in $1000 units. Assume the assets will be traded at their original
> A 2-year-old injection molding machine was expected to be kept in service for its projected life of 5 years, but a new challenger promises to be more efficient and have lower operating costs. You have been asked to determine if it would be economically a
> A nationwide real estate corporation is considering adding a new service line to sell the house of a client that buys another house through one of their agencies. It has determined that the first cost would be $80 million cash available for full implemen
> In an after-tax replacement study between a defender and a challenger, there may be a capital gain (CG) or loss (CL) when the defender is sold. (a) How is the gain or loss calculated, and (b) how does it affect the AW values in the study?
> AAA Pest Control uses the following: before-tax MARR = 14% per year, after-tax MARR = 7% per year, and Te = 50%. Two new spray machine options have the following estimates and will generate the same GI each year. Select A or B under the following conditi
> Elias wants to perform an after-tax evaluation of equivalent methods to electrostatically remove airborne particulate matter from clean rooms used to package liquid pharmaceutical products. Two alternatives are available, but others may be identified if
> An online patient diagnostics system for surgeons has the following point estimates: A first cost of $200,000 to install and $5000 annually to maintain over its expected life of 5 years. Added revenue is estimated to average $60,000 per year. Examine the
> Perform a PW-based evaluation of the two alternatives below using (a) by hand, and (b) by spreadsheet solutions. The after-tax MARR is 8% per year, MACRS depreciation applies, and Te = 40%. The (GI − OE) estimate is made for the first 3
> Process control equipment purchased for $78,000 by Debco, Incorporated generated a CFBT of $26,080 during the first year of its 10-year estimated life. This would represent a return of 31.2% per year if maintained throughout the 10 years. However, the co
> A European candy manufacturing plant manager must select a new irradiation system to ensure the safety of specific ingredients, while being economical. The two alternatives available have the following estimates: The company is in the 35% tax bracket and
> When JJ and Sons was awarded a contract to pour a skyscraper’s foundation, the father had to choose between two pieces of equipment needed to supplement pumping of concrete into foundation settings. Estimates are below. Both machines ha
> A division of Midland Oil & Gas has a TI of $8.95 million for a tax year. If the state tax rate averages 5% for all states in which the corporation operates, find the equivalent after-tax ROR required of projects that are justified only if they can demon
> The president of ChemTech is trying to decide whether to start a new product line or purchase a small company. It is not financially possible to do both. To make the product for a 3-year period will require an initial investment of $250,000. The expected
