I would like you to answer all the questions in the excel attachment using only the Excel functions. Please do remember to answer the questions only using excel functions.

An existing robot can be kept if $2,000 is spent now to upgrade it for future service requirements. Alternatively, the

have been developed for both the defender and challenger.

Defender

Challenger

Current MV

$38.000 Purchase Price

Required Upgrade

$2.000 Installation Cost

Annual Expenses

$1.400 Annual Expenses

Remaining Useful Life

6 Years Useful Life

MV at the end of Useful Life

-$1.500 MV at the end of Useful Life

The company’s before-tax MARR is 20% per year. Based on this information, should the existing robot be replaced

Solution

requirements. Alternatively, the company can purchase a new robot to replace the old robot. The following estimates

$51.000

$5.500

$1.000

10 Years

eful Life

$7.000

d the existing robot be replaced right now? Assume the robot will be needed for an indefinite period of time.(9.7)

e following estimates

riod of time.(9.7)

In a replacement analysis for a vacuum seal on a spacecraft, the following data are known about the challenger: the

years, however, it will $2000 in each of years four and five, and then $4500 in the sixth year and increasing by $25

year. What is the economic life of this challenger?

Solution

known about the challenger: the initial investment is $12,000; there is no annual maintenance cost for the first three

xth year and increasing by $2500 each year thereafter. The salvage value is $0 at all times, and MARR is 10% per

ost for the first three

d MARR is 10% per

Use the PW method to select the better of the following alternatives

Annual Expenses

Defender: Alternative A

Labor

$300.000

Material

250000

Insurance and Property Taxes

4% of initial capital investment

Maintenance

$8.000

Leasing Cost

None

Assume that the defender was installed five years ago.The MARR is 10% per year

Alternative A

Cost of defender five years ago= $5,000,000

BV now= $111.550

Estimated MV eight years from now= $50,000

Present MV= $150,000

Challenger: Alternative B

$250.000

100.000

None

None

100.000

A proposal has been made for improving the downtown area of a small town. The plan calls for banning vehicular tr

plantings and other beautification features. This plan will involve actual costs of $6,000,000 and, according to its pro

Benefits:

Increased sales tax revenue

$

450.000 per year

Increased real estate property taxes

$

325.000 per year

Benefits due to decreased air pollution

$

80.000 per year

Quality of life improvements to users

$

70.000 per year

Disbenefits:

Increased maintenance

$

175.000 per year

a. Compute the B-C ratio of this plan based on a MARR of 10% per year and an infinite life for the Project. (10.7)

b. How does the B-C ration change for a 20-year project life ? (10.7)

Solution

alls for banning vehicular traffic on the main street and turning this street into a pedestrian mall with tree

00 and, according to its proponents, the plan will produce benefits and disbenefits to the town as follows:

life for the Project. (10.7)

with tree

s follows:

A retrofitted space-heating system is being considered for a small office building. The system can be purchased an

of electric power each year over a six-year period.A kilo watt-hour of electricity costs $0.10, and the company uses

market value of the system will be $8,000 at the end of six years, and additional annual operating and maintenance

(10.7)

Solution

e system can be purchased and installed for $120,000, and it will save an estimated 300,000 kilowatt-hours(kWh)

$0.10, and the company uses a MARR of 15% per year in its economic evaluations of refurbished systems. The

ual operating and maintenance expenses are negligible. Use the benefit-cost method to make a recommendation.

ilowatt-hours(kWh)

hed systems. The

a recommendation.

There are two mutually exclusive proposal for a for a flood control project in Illinois. The first proposal involves an in

assumed to be permanent. The second proposal requires an initial outlay of $700000 followed by $200000 every 1

$95000 for the first 12 years and $150000 each year thereafter. Annual benefits are identical for both projects, and

proposal should be recommended?

Solution

The first proposal involves an initial outlay of $1350000 and annual expenses of $110000 this plan is

00 followed by $200000 every 12 years thereafter. Annual expenses for the second proposal are estimated to be

identical for both projects, and terminal salvage values are negligible. The interest rate is 6% per year. Which

an is

e estimated to be

er year. Which

Refer to Example 11-2. Assuming gasoline costs $4.00 per gallon, find the breakeven mileage per year between th

e per year between the hybrid vehicle and the gas-only vehicle. All other factors remain the same.

Suppose that, for a certain potential investment project, the optimistic, most likely, and pessimistic estimates are as

A. What is the AW for each of the three estimation conditions ?

B. It is thought that the most critical factors are useful life and net annual cash flow. Develop a table showing the ne

assuming

Optimistic

Most Likely

Pessimistic

Capital Investment

$

90.000 $

100.000 $

120.000

Useful Life

12 Years

10 Years

6 Years

Market Value

$

30.000 $

20.000 $

Net Annual Cash Flow

$

35.000 $

30.000 $

20.000

MARR (per year)

10%

10%

10%

Solution

pessimistic estimates are as shown in the accompanying table.

velop a table showing the net AW for all combinations of the estimates for these two factors,

An aerodynamic three-wheeled automobile (the Dart) runs on compressed natural gas stored in two cylinders in the

hour, and it can travel 100 miles per gallon of fuel. Another two-seater automobile costs $10,000 and averages 50m

MARR is 10% per year, over what range of annual miles driven is the Dart more economical ? Assume a useful life

Solution

stored in two cylinders in the rear of the vehicle. The $13,000 Dart can cruise at speeds up to 80 miles per

s $10,000 and averages 50miles per gallon of compressed natural gas. If fuel costs $8.00 per gallon and

omical ? Assume a useful life of five years for both cars. (11.2)

A large mudslide caused by heavy rains will cost Sabino County $1,000,000 per occurrence in lost property tax reve

A civil engineer has proposed constructing a culvert on a mountain where mudslides are likely. This culvert will redu

and annual maintenance expenses would be $2000 in the first year, increasing by 5% per year thereafter. If the life

7% per year, should the culvert be built ?

Solution

currence in lost property tax revenues.In any given year, there is one chance in 100 that a major mudslide will occur.

s are likely. This culvert will reduce the likehood of a mudslide to near zero. The investment cost would be $50,000,

5% per year thereafter. If the life of the culvert is expected to be 20 years and the cost of capital to Sabino County is

mudslide will occur.

would be $50,000,

to Sabino County is

A new snow making machine utilizes technology that permits snow to be produced in ambient temperature of 70 de

contemplating this investement are uncertain as shown below (note pr= probability).

Capital Investment

$ 120,000 (Certain, pr. = 1.0)

Annual Revenues

$ 140,000 with pr.0.6, or $50,000 with pr.0.4

Annual Expenses

$ 60,000 with pr.0.6, or $50,000 with pr.0.4

Salvage Value

$ 40,000 with pr.0.5, or $35,000 with pr.0.5

The machine is expected to have a useful life of 12 years, and the MARR of the ski resort is 8% per year.What is th

Solution

n ambient temperature of 70 degrees Fahrenheit or below. The estimated cash flows for ski resort

.

resort is 8% per year.What is the expected present worth of this investment ?

ort

The owner of a ski resort is considering installing a new ski lift that will cost $900,000. Expenses for operating and m

The U.S.Weather Service estimates that there is a 60% probability of 80 days of skiing weather per year, a 30% pro

operators of the resort estimate that during the first 80 days of adequate snow in a season, an average of 500 peop

the lift will be used by only 400 people per day during the extra period; and if 20 more days of skiing are available, o

The owners wish to recover any invested capital within five years and want at least a 25% per year rate of return be

Solution

0. Expenses for operating and maintaining the lift are estimated to be $1,500 per day when operating.

ng weather per year, a 30% probability of 100 days per year, and a 10% probability of 120 days per year. The

eason, an average of 500 people will use the lift each day, at a fee of $10 each. If 20 additional days are available,

e days of skiing are available, only 300 people per day will use the lift during those days.

25% per year rate of return before taxes. Based on a before-tax analysis, should the lift be installed?

rating.

per year. The

days are available,

alled?

SECTION 11.2 / BREAKEVEN ANALYSIS

EXAMPLE 11-2

Two Alternative Breakeven Analysis: Hybrid Vehicles

Gas-electric (so-called hybrid) vehicles save on gasoline consumption by shut-

ting off the vehicle’s engine while idling, giving the vehicle a boost of electric

addition to environmental benefits, the primary monetary benefit to the owner

power during acceleration, and capturing electrical energy while braking. In

is reduced fuel cost as a result of improved gas mileage. The trade-off

, however

,

is that the purchase price of the hybrid vehicle is higher than that of a standard

gasoline-only fueled vehicle.

Consider a hybrid vehicle with a sticker price of $31,500. This vehicle will

average 30 miles per gallon of gasoline. A tax credit* of $1,500 for the hybrid

vehicle effectively reduces its sticker price to $30,000. A comparably equipped

gasoline-only vehicle will cost $28,000 and will average 25 miles per gallon of

gasoline. Assuming an interest rate of 3% per year and a study period of five

years, find the breakeven cost of gasoline ($/gal) if the vehicle will be driven

18,000 miles each year.

Hybrid: EUACH(3%) = ($31,500 – $1,50041915)

Solution

To find the cost of gasoline that makes you indifferent between the two vehicles,

you need to develop an equivalent-worth equation in terms of the factor of

interest—the cost of gasoline. In this simple example, we are only considering

the sticker price (investment cost) and fuel cost (annual expenses). By default,

we are assuming that the maintenance of the two vehicles will be the same as

will the future resale value.

In this example, we develop equivalent uniform annual cost (EUAC)

expressions for each of the vehicles. Letting X = cost of gasoline, we get the

following EUAC equations.

3 000

18,000 mi/year

+($X/gal)

30 mi/gal

Gas-only: EUACG(3%) = $28,000(A/P, 3%, 5) + ($X/gal)

(18,000 mi/year

25 mi/gal

Setting EUACH(3%) = EUACG(3%) and solving for X, we find the breakeven

cost of gasoline to be

X = $3.64/gal.

Figure 11-2 shows the breakeven chart for these vehicles as a function of the cost

of gasoline. If our best estimate of the average cost of gasoline over the next five

years is less than $3.64 per gallon, then purchasing a traditional gasoline-only

vehicle is more economical

. The hybrid would be the vehicle of choice if the cost

of gasoline is projected to be higher than $3.64 per gallon.

* The Energy Policy Act of 2005 provides for certain tax credits for purchasers of hybrid and other alternatively

fueled vehicles. Very specific requirements must be met. The $1,500 used in the example is for demonstration

purposes only.

Purchase answer to see full

attachment