A firm must decide which of three alternatives toadoptto

Given the following, construct a choice table forinterest rates from 0% to 100%. Construct a choice table for interest rates from 0%to 100%

Consider three alternativesA,B,and do-nothing.Construct a choice table for interest rates from 0%to 100%.YearAB0$100$1501304323043330434304353043

A firm is considering two alternatives that have nosalvage value.ABInitial cost$10,700 $5500Uniform annual benefits 2,100 1800Useful life, in years8 4At the end of 4 years, anotherBmay be purchasedwith the same cost, benefits, and so forth.(a)Construct a choice table for interest rates from0% to 100%.(b)If the MARR is 10%, which alternative shouldbe selected?

Your cats summer kitty-cottage needs a new roof.You are considering the following two proposalsandfeela 15-yearanalysisperiod is in line with yourcats remaining lives. (There is no salvage value forold roofs.)Thatch SlateFirst cost$20 $40Annual upkeep5 2Service life, in years 3 5(a)Construct a choice table for interest rates from0% to 100%.(b)Which roof should you choose if your MARRis 12%? What is the actual value of the IRR onthe incremental cost?

Don Garlits is a landscaper. He is considering thepurchase of a new commercial lawn mower, eitherthe Atlas or the Zippy. Construct a choice table forinterest rates from 0% to 100%.Atlas ZippyInitial cost$6700 $16,900Annual operation and 1500 1,200maintenance costAnnual benefit4000 4,500Salvage value1000 3,500Useful life, in years 3 6

The South End bookstore has an annual profitof $170,000. The owner is considering opening asecond bookstore on the north side of the campus.He can lease an existing building for 5 years withan option to continue the lease for a second 5-yearperiod. If he opens the secondbookstore,he expectsthe existing store will lose some business that willhe gainedby The North End, the new bookstore.Itwill take $500,000 of store fixtures and inventory toopen The North End. He believes that the two storeswill have a combined profit of $260,000 a year afterall the expenses of both stores have been paid.The owners economic analysis is based on a 5-yearperiod. He will be able to recover this $500,000investment at the end of 5 years by selling the storefixtures and inventory.(a)Construct a choice table for interest rates from0% to 100%.(b)The owner will not open The North End unlesshe can expect a 15% rate of return. What shouldhe do?

A paper mill is considering two types of pollutioncontrol equipment.Neutralization PrecipitationInitial cost$700,000 $500,000Annual chemical cost 40,000 110,000Salvage value175,000 125,000Useful life, in years5 a)Construct a choice table for interest rates from0% to 100%.(b)The firm wants a 12%rate of return on any avoid-able increments of investment. Which equipmentshould be purchased

A stockbroker has proposed two investments in low-rated corporate bonds paying high interest ratesand selling below their stated value (in otherwords, junk bonds). The bonds are rated as equallyrisky.Annual Current MarketStated Interest Price with BondBond Value Payment Commission MaturityGen Dev $1000 $ 94 $480 15 yearsRJR 1000 140 630 15At maturity the bondholderreceives the last interestpayment plus the bonds stated value.(a)Construct a choice table for interest rates from0% to 100%.(b)Which,if any,of the bondsshouldyoubuy if yourMARR is 25%?

Using the current specifications, a new road willcost $1.5M initially, need$120K in annual mainte- nance, and need to be resurfaced every 10 years for$1.1M. A proposed new specification is expected tobe more resistant to wear. The initial cost will be$2.1M with $90K in annual maintenance and resur- facing every 15 years for $1.3M. Use capitalizedcost.(a)Develop a choice table for interest rates from 0%to 25%.(b)If the highway departments interest rate is 6%,which specification is preferred?

George is going to replace his car in 3 years whenhe graduates, but now he needs a radiator repair. Thelocal shop has a used radiator, which will be guaran-teed for 2 years, or they can install a new one, whichis guaranteed for as long as you own the car. Theused radiator is $250 and the new one is $450. IfGeorge assumes the used radiator will last 3 years,but will need to be replaced so he can sell the car,which should he buy?(a)Develop a choice table for interest rates from 0%to 50%.(b)Georges interest rate on his credit card is 20%.What should he do?

Consider the following alternatives:ABCInitial cost$300 $600 $200Uniform annual benefits41 98 35Each alternative has a 10-year useful life and nosalvage value.(a)Construct a choice table for interest rates from0% to 100%.(b)If the MARR is 8%, which alternative should beselected?

The following four mutually exclusive alternativeshave no salvage value after 10 years.ABC DFirst cost$75 $50 $50 $85Uniform annual benefit 16 12 10 17Computed rate of return 16.8% 20.2% 15.1% 15.1%(a)Construct a choice table for interest rates from0% to 100%.(b)Using 8% for the MARR, which alternativeshould be selected?

The following three mutually exclusive alternativeshave no salvage value after 5 years:AB CFirst cost$200 $300 $600Uniform annual benefit 59.7 77.1 165.2Computed rate of return 15% 9% 11.7%Construct a choice table for interest rates from 0% to100%

Consider four mutually exclusive alternatives, eachhaving an 8-year useful life:ABCDFirst cost $1000 $800 $600 $500Uniform annual 122 120 97 122benefitSalvage value 750 500 500 0

(a)Construct a choice table for interest rates from0% to 100%.(b)If the minimum attractive rate of return is 8%,which alternative should be selected?

Three mutually exclusive projects are beingconsidered:ABCFirst cost $1000 $2000 $3000Uniform annual 150 150 0benefitSalvage value 1000 2700 5600Useful life, 5 6 7in yearsWhen each project reached the end of its useful life,it would be sold for its salvage value and there wouldbe no replacement.(a)Construct a choice table for interest rates from0% to 100%.(b)If 8% is the desired rate of return, which projectshould be selected?

Consider three mutually exclusive alternatives andthe do-nothing alternative.AB CInitial cost$770 $1406 $2563Uniform annual 420 420 420benefitUseful life (years2 4 8Rate of return 6.0% 7.5% 6.4%The analysis period is 8 years. At the end of 2, 4, and6 years, Alt.Awill have an identical replacement.AlternativeBwill have a singleidentical replacementat the end of 4 years. Construct a choice table forinterest rates from 0% to 100%

Consider the three alternatives:ABCInitial cost$1500 $1000 $2035Annual benefit for250 250 650first 5 yearsAnnual benefit for450 250 145subsequent 5 years Each alternative has a 10- year useful life and nosalvage value.Construct a choice table for interest rates from 0%to 100%

Three mutually exclusive alternatives are being con-sidered.ABCInitial investment$50,000 $22,000 $15,000Annual net income 5,093 2,077 1,643Rate of return 8% 7% 9%Each alternative has a 20-year useful life with nosalvage value.(a)Construct a choice table for interest rates from0% to 100%.(b)If the minimum attractive rate of return is 7%,which alternative should be selected?

A business magazine is available for $58 for 1 year,$108 for 2 years,$153for 3 years,or $230for 5 years.Assume you will read the magazine for at least thenext 5 years. For what interest rates do you prefereach payment plan?

Three office furniture firms that offer different pay-ment plans have responded to a request for bids froma state agency.Price Payment ScheduleOfficeLess $185,000 50% now,25% in 6 months,25% in 1 yearOfficeMore 182,000 50% now,50% in 6 monthsOfficeStation 198,000 100% in 1 year(a)Develop a choice table for nominal interest ratesfrom 0% to 50%.(b)If the agencys MARR is 10%, which vendorsplan is preferred?

Consider the following alternatives:ABCInitial cost$100.00 $150.00 $200.00Uniform annual 10.00 17.62 55.48benefitUseful life (years) Infinite 20 5AlternativesBandCare replaced at the end oftheir useful lives with identical replacements. Use aninfinite analysis period.(a)Construct a choice table for interest rates from0% to 100%.(b)At an 8% interest rate, which alternative is better?

Three mutually exclusive alternatives are beingstudied.YearABC0$20,000$20,000$20,0001 10,000 10,000 5,0002 5,000 10,000 5,0003 10,000 10,000 5,0004 6,0000 15,000(a)Construct a choice table for interest rates from0% to 100%.(b)If the MARR is 12%, which alternative should beselected?

A firm is considering three mutually exclusive alter-natives as part of a production improvement program.The alternatives are as follows:ABCInstalled cost $10,000 $15,000 $20,000Uniform annual benefit 1,625 1,625 1,890Useful life, in years 10 20 20For each alternative, the salvage value at the end ofuseful life is zero. At the end of 10 years, Alt.Acould be replaced by anotherAwith identical costand benefits.(a)Construct a choice table for interest rates from0% to 100%.(b)The MARR is 6%. If the analysis period is20 years, which alternative should be selected?

A new 10,000-square-meter warehouse next door tothe Tyre Corporation is for sale for $450,000. Theterms offered are $100,000 down with the balancebeing paid in 60 equal monthly payments basedon 15% interest. It is estimated that the warehouse (a)Construct a choice table for interest rates from0% to 100%.(b)MARR=15%. Using incremental rate ofreturn analysis,which alternative, if any, shouldthe company choose?

Wayward Airfreight, Inc. has asked you to rec-ommend a new automatic parcel sorter. You haveobtained the following bids:SHIP-R SORT-Of U-SORT-MFirst cost$184,000 $235,000 $180,000Salvage value 38,300 44,000 14,400Annual benefit 75,300 89,000 68,000Yearly maintenance 21,000 21,000 12,000and operating costUseful life, in years 7 7 7(a)Construct a choice table for interest rates from0% to 100%.(b)Using a MARR of 15% and a rate of returnanalysis, which alternative, if any, should beselected?

A firm is considering the following alternatives, aswell as a fifth choice: do nothing. Each alternativehas a 5-year useful life.1234Initial cost$100,000 $130,000 $200,000 $330,000Uniform annual 26.38 38.78 47.48 91.55net income ($000s)Rate of return 10% 15% 6% 12%(a)Construct a choice table for interest rates from0% to 100%.(b)The firms minimum attractive rate of return is8%. Which alternative should be selected?

Construct a choice table for interest rates from 0%to 100%.AlternativesABCDInitial cost$2000 $5000 $4000 $3000Annual benefit 800 500 400 1300Salvage value 2000 1500 1400 3000Life,inyears 5674

In a particular situation, four mutually exclusivealternatives are being considered. Each of thealternatives costs $1300 and has no salvage valueafter a 10-year life.Alter-Ratenative Annual Benefit of ReturnA$100 at end of first year;increasing $30 per yearthereafter10.0%B$10 at end of first year;increasing $50 per yearthereafter8.8%CAnnual end-of-yearbenefit = $26015.0%D$450 at end of first year;declining $50 per yearthereafter18.1%(a)Construct a choice table for interest rates from0% to 100%.(b)If the MARR is 8%, which alternative shouldbeselected

A more detailed examination of the situation inProblem 8-31 reveals that there are two additionalmutually exclusive alternatives to be considered.Both cost more than the $1300 for the four origi-nal alternatives. Both have no salvage value after auseful life of 10 years.AnnualEnd-of-Years RateAlternative Cost Benefit of ReturnE$3000 $ 488 10.0%F5850 1000 11.2%(a)Construct a choice table for interest rates from0% to 100%.(b)If the MARR remains at 8%, which one of thesix alternatives should be selected? (Answer:Alt.F)

The owner of a downtown parking lot has employeda civil engineering consulting firm to advise him onthe economic feasibility of constructing an officebuilding on the site. Betty Samuels, a newly hiredcivil engineer, has been assigned to make the anal-ysis. She has assembled the following data:TotalTotal NetAnnualAlternative InvestmentRevenueSell parking lot $ 0 $ 0Keep parking lot 200,000 22,000Build 1-story building 400,000 60,000Build 2-story building 555,000 72,000Build 3-story building 750,000 100,000Build 4-story building 875,000 105,000Build 5-story building 1,000,000 120,000Includes the value of the land.The analysis period is to be 15 years. For allalternatives, the property has an estimated resale(salvage) value at the end of 15 years equal to thepresent total investment.(a)Construct a choice table for interest rates from0% to 100%.(b)If the MARR is 10%, what recommendationshould Betty make?

A firm is considering moving its manufacturingplant from Chicago to a new location. The indus-trial engineering department was asked to identifythe various alternatives together with the costs torelocate the plant, and the benefits. The engineersexamined six likely sites, together with the do- nothing alternative of keepingthe plant at its presentlocation. Their findings are summarized as follows:First Uniform AnnualPlant Location Cost ($000s) Benefit ($000s)Denver$300 $ 52Dallas550137San Antonio 450117Los Angeles 750167Cleveland 15018Atlanta20049Chicago00The annualbenefitsare expected to be constantoverthe 8-year analysis period. a)Construct a choice table for interest rates from0% to 100%.(b)If the firm uses 10% annual interest in its eco-nomic analysis, where should the manufactur-ing plant be located?

An oil company plans to purchase a piece of vacantland on the corner of two busy streets for $70,000.On properties of this type, the company installsbusinesses of four different types.Plan CostType of BusinessA$ 75,000 Conventional gas station withservice facilities for lubrication,oil changes, etc.B230,000 Automatic carwash facility withgasoline pump island in frontC30,000 Discount gas station (no servicebays)D130,000 Gas station with low-cost,quick-carwash facilityImprovements cost does not include $70,000 for the land.In each case, the estimated useful life of theimprovements is 15 years. The salvage value foreach is estimated to be the $70,000 cost of the land.The net annual income, after paying all operatingexpenses, is projected as follows:Plan Net Annual IncomeA$23,300B44,300C10,000D27,500(a)Construct a choice table for interest rates from0% to 100%.(b)If the oil company expects a 10% rate of returnon its investments, which plan (if any) shouldbe selected?

The Financial Advisoris a weekly column in thelocal newspaper. Assume you must answer the fol- lowing question. I recently retired at age 65, andI have a tax-free retirement annuity coming duesoon.I have three options. I can receive (A)$30,976now, (B)$359.60 per month for the rest of my life(assume20 years), or (C)$513.80per month for thenext 10 years. What should I do? Ignore the tim- ing of the monthly cash flows and assume that thepayments are received at the end of year.Contributed by D. P. Loucks, Cornell University(a)Develop a choice table for interest rates from0% to 50%. (You do not know what the readersinterest rate is.)(b)Ifi=9%, use an incremental rate of returnanalysis to recommend which option should bechosen.

A firm must decide which of three alternatives toadoptto expand its capacity.The firm wishes a min- imum annual profit of 20% of the initial cost ofeachseparableincrementofinvestment.Any moneynot invested in capacity expansion can be investedelsewhere for an annual yield of 20% of initial cost.Alt. Initial Cost Annual Profit Profit RateA$100,000 $30,000 30%B300,000 66,000 22%C500,000 80,000 16%Which alternative should be selected? Use achallengerdefenderrate of return analysis

The New England Soap Company is consideringadding some processing equipment to the plant toaid in the removal of impurities from some rawmaterials. By adding the processing equipment,the firm can purchase lower-grade raw material atreduced cost and upgrade it for use in its products.Four different pieces of processing equipmentare being considered:ABCDInitial investment$10,000 $18,000 25,000 $30,000Annual saving in 4,000 6,000 7,500 9,000materials costsAnnual operating 2,000 3,000 3,000 4,000cost The company can obtain a 15% annual return on itsinvestment in other projects and is willing to investmoney on the processing equipment only as long asit can obtain 15% annual return on each incrementof money invested.Which one,if any, of the alterna-tives should be selected? Use a challengerdefenderrate of return analysis

Frequentlywe read in the newspaperthat oneshouldlease a car rather than buying it. For a typical 24- month lease on a car costing $9400, the monthlylease charge is about $267. At the end of the 24months, the car is returned to the lease company(which owns the car). As an alternative, the samecar could be bought with no down payment and24 equal monthly payments, with interest at a 12%nominal annual percentage rate. At the end of 24months the car is fully paid for. The car would thenbe worth about half its original cost.(a)Over what range of nominal before-tax interestrates is leasing the preferred alternative?(b)What are some of the reasons that would makeleasing more desirable than is indicated in (a)?

The Financial Advisoris a weekly column in thelocal newspaper. Assume you must answer the fol- lowing question. I need a new car that I will keepfor 5 years. I have three options. I can (A)pay$19,999 now, (B)make monthly payments for a 6%5-year loan with 0% down, or (C)make lease pay-ments of $299.00 per month for the next 5 years.The lease option also requires an up-front paymentof $1000. What should I do?Assume that the number of miles drivenmatches the assumptions for the lease, and thevehicles value after 5 years is $6500. Rememberthat lease payments are made at the beginning ofthe month, and the salvage value is received only ifyou own the vehicle.(a)Develop a choice table for nominal interest ratesfrom 0% to 50%. (You do not know what thereaders interest rate is.)(b)Ifi= 9%, use an incremental rate of returnanalysis to recommend which option should bechosen.

The FinancialAdvisoris a weekly column in the localnewspaper. Assume you must answer the followingquestion.I needa new carthat I will keepfor 5 years.I have three options. I can (A)pay $15,999 now, (B)make monthly payments for a 9% 5-year loan with0% down, or (C)make lease payments of $269.00per month for the next 5 years.The lease option also requires an up-front paymentof$500. What should I do?Assume that the number of miles drivenmatches the assumptions for the lease, and thevehicles value after 5 years is $4500. Rememberthat lease payments are made at the beginning of themonth, and the salvage value is received only if youown the vehicle.(a)Develop a choice table for nominal interest ratesfrom 0% to 50%. (You do not know what thereaders interest rate is.)(b)Ifi= 9%, use an incremental rate of returnanalysis to recommend which option should bechosen.

Assume that the vehicle described in Problem 8-40will be kept for 10 rather than 5 years. If leased, thevehicle can be purchased for its value at the end of5 years. At the end of 10 years, the vehicle will beworth $2000.(a)Develop a choice table for nominal interest ratesfrom 0% to 50%. (You do not know what thereaders interest rate is.)(b)Ifi= 9%, use an incremental rate of returnanalysis to recommend which option should bechosen.(c)Are youranswersdifferent than in Problem 8-40?Why or why not?

Contact a car dealer and choose a car to evaluatea buy-versus-lease decision (keep it reasonablenoLamborghinis). Tell the people at the dealership that you are a studentworking on an assignment.Be truth-ful and dont argue; if they dont want to help you,leave and find a friendlier dealer. For both buyingand leasing, show all assumptions, costs, and cal-culations. Do not include the cost of maintenance,gasoline, oil, water, fluids, and other routine expensesin your calculations.Determine the cars sales price (no need to nego-tiate) and the costs for sales tax, license, and fees.Estimate the Blue Book value in 5 years. Deter-mine the monthly payment based on a 5-year loanat 9% interest. Assume that your down payment islarge enough to cover only the sales tax, license, andfees. Calculate the equivalent uniform monthly costof owning the car.Identify the costs to lease the car (if availableassume a 5-year lease). This includes the monthlylease payment, required down payments, and anyreturn fees that are required. Calculate the equivalentuniform monthly cost of leasing the car.The salesperson probably does not have theanswers to many of these questions. Write a one-to two-page memo detailing the costs. Make a rec-ommendation: Should you own or lease your car?Include nonfinancial items and potential financialitems in your conclusions, such as driving habits andwhether you are likely to drive more than the allowednumber of miles dictated in the lease

Develop the costs and benefits to compare owning acarversus dependingon public transit, friends, and/ora bicycle. Place a monetary value on each advantageor disadvantage. Develop a choice table for interestrates between 0% and 25%.

Develop the costs and benefits to compare owning anew car with one that is 2 years old. Place a monetaryvalue on each advantage or disadvantage. Developa choice table for interest rates between 0% and25%

For a vehicle that you or a friend owns, determine thenumber of miles driven per year. Find three alterna-tive sets of 4 tires that differ in their tread warranty.Assume that the life of the tires equals the tread war-ranty divided by the number of miles driven per year.Compare the EUACs of the tires.(a)For what interest rates is each choice the best?(b)Develop a graph equivalent to Figure 8-4 to illus-trate the results.(c)For the interest rate that is in the middle of yourrange, how low and how high can the numberof miles each year be without changing the bestchoice?