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IME 345

Chapter 11 Homework Solution

Spring 2012

PROBLEM 11.5
a

INSIDER'S VIEWPOINT APPROACH


KEEP EXISTING SPECIALTY CONCRETE MIXER
MARKET VALUE =
ANNUAL O&M COST =
SALVAGE VALUE IN 8 YEARS =
REMAINING LIFE =
MARR =

$65,000.00
$105,000.00
$5,000.00
8
15.00%

EUAC=105000-5000(A|F 15%,8)=
EUAC=105000-5000(0.07285)=

$104,635.75

REPLACE WITH NEW SPECIALTY CONCRETE


MIXER
FIRST COST =
ANNUAL O&M COST =
SALVAGE VALUE =
REMAINING LIFE =
MARR =

$375,000.00
$40,000.00
$45,000.00
8
15.00%

EUAC=(375000-65000)(A|P 15%,8)+4000045000(A|F 15%,8)=


EUAC=310000(0.22285)+40000-45000(0.07285)=

$105,805.25

RECOMMENDATION: KEEP THE EXISTING SPECIALTY MIXER


EUAC DIFFERENCE =

$1,169.52

IME 345

Chapter 11 Homework Solution

Spring 2012

PROBLEM 11.5
b

OUTSIDER'S VIEWPOINT APPROACH


KEEP EXISTING SPECIALTY CONCRETE MIXER
MARKET VALUE =
ANNUAL O&M COST =
SALVAGE VALUE IN 8 YEARS =
REMAINING LIFE =
MARR =

$65,000.00
$105,000.00
$5,000.00
8
15.00%

EUAC=65000(A|P 15%,8)+105000-5000(A|F 15%,8)=


EUAC=65000(0.22285)+105000-5000(0.07285)=

$119,121.00

REPLACE WITH NEW SPECIALTY CONCRETE MIXER


FIRST COST =
ANNUAL O&M COST =
SALVAGE VALUE =
REMAINING LIFE =
MARR =

$375,000.00
$40,000.00
$45,000.00
8
15.00%

EUAC=375000(A|P 15%,8)+40000-45000(A|F 15%,8)=


EUAC=375000(0.22285)+40000-45000(0.07285)=

$120,290.50

RECOMMENDATION: KEEP THE EXISTING SPECIALTY MIXER


EUAC DIFFERENCE =

$1,169.52

IME 345

Chapter 11 Homework Solution

Spring 2012

PROBLEM 11.19
(4 points)
a

INSIDER'S VIEWPOINT APPROACH


KEEP EXISTING TURRET LATHE AND CONTRACT OUT
PURCHASE PRICE =
YEARS USED ALREADY =
MARKET VALUE TODAY =
DECREASE IN MV/YR =
MINIMUM MARKET VALUE =
ANNUAL CONTRACT COST =
ANNUAL O&M COST =
REMAINING LIFE =
AFTER-TAX MARR =
TAX RATE =

$96,000.00
5
$18,000.00
$3,000.00
$3,000.00
$13,000.00
$8,000.00
8
9.00%
40.00%

KEEP EXISTING TURRET LATHE AND CONTRACT OUT AFTER-TAX ANALYSIS

EOY
0
1
2
3
4
5
6
7
8

BTCF
$0.00
-$21,000.00
-$21,000.00
-$21,000.00
-$21,000.00
-$21,000.00
-$21,000.00
-$21,000.00
-$18,000.00

DWO
$8,563.20
$8,572.80
$4,281.60
$0.00
$0.00
$0.00
$0.00
$0.00

B(EX)
$21,417.60
$12,854.40
$4,281.60
$0.00
$0.00
$0.00
$0.00
$0.00
$0.00

TI
-$29,563.20
-$29,572.80
-$25,281.60
-$21,000.00
-$21,000.00
-$21,000.00
-$21,000.00
-$18,000.00

T
-$11,825.28
-$11,829.12
-$10,112.64
-$8,400.00
-$8,400.00
-$8,400.00
-$8,400.00
-$7,200.00
EUAC=

ATCF
$0.00
-$9,174.72
-$9,170.88
-$10,887.36
-$12,600.00
-$12,600.00
-$12,600.00
-$12,600.00
-$10,800.00
$11,108.62
SUM(1-8) =

MACRSGDS(7)
8.93%
8.92%
8.93%
4.46%
0.000%
0.000%
0.000%
0.000%
0.000%
22.31%

IME 345

Chapter 11 Homework Solution

Spring 2012

PROBLEM 11.19

REPLACE WITH NEW TURRET LATHE


FIRST COST =
ANNUAL O&M COST =
SALVAGE VALUE =
$65,000*0.7^8
REMAINING LIFE =
AFTER-TAX MARR =
TAX RATE =

$65,000.00
$10,000.00
$3,747.12
8
9.00%
40.00%

REPLACE WITH NEW TURRET LATHE AFTER-TAX ANALYSIS


NOTE! DEPRECIATION WRITEOFF OF EXISTING TURRET LATHE IN YEAR 1 IS $96,000.00*0.0892/2=$4281.60

NOTE! BOOK VALUE OF EXISTING TURRET LATHE AT END OF YEAR 1 FOR TAX PURPOSES IS $12,854.40+$4281.60=$21,417.60-$4281.60=$17,136.00
NOTE! TI FOR EXISTING TURRET LATHE IN YEAR 1 IS $18,000.00-$17,136.00=$864.00
NOTE! DEPRECIATION WRITEOFF OF NEW TURRET LATHE IN YEAR 1 IS $65,000.00*0.1429=$9288.50
NOTE! TOTAL DEPRECIATION WRITEOFF IN YEAR 1 IS $4281.60+$9288.50=$13,570.10
NOTE! TOTAL TAXABLE INCOME IN YEAR 1 IS -$10,000.00-$13,570.10+$864.00=-$22,706.10

EOY
0
1
2
3
4
5
6
7
8

BTCF
-$47,000.00
-$10,000.00
-$10,000.00
-$10,000.00
-$10,000.00
-$10,000.00
-$10,000.00
-$10,000.00
-$6,252.88

DWO

B(NEW)

TI

ATCF

$13,570.10
$15,918.50
$11,368.50
$8,118.50
$5,804.50
$5,798.00
$5,804.50
$2,899.00

$65,000.00
$55,711.50
$39,793.00
$28,424.50
$20,306.00
$14,501.50
$8,703.50
$2,899.00
$0.00

$0.00
-$22,706.10
-$25,918.50
-$21,368.50
-$18,118.50
-$15,804.50
-$15,798.00
-$15,804.50
-$9,151.88

$0.00
-$9,082.44
-$10,367.40
-$8,547.40
-$7,247.40
-$6,321.80
-$6,319.20
-$6,321.80
-$3,660.75
EUAC=

$47,000.00
-$917.56
$367.40
-$1,452.60
-$2,752.60
-$3,678.20
-$3,680.80
-$3,678.20
-$2,592.13
$10,569.92

EUAC EXISTING TURRET LATHE AND CONTRACT OUT =


$11,108.62
EUAC (REPLACE WITH NEW TURET LATHE) =
$10,569.92
RECOMMENDATION: REPLACE WITH NEW TURRET LATHE (ALTHOUGH CLOSE)

MACRSGDS(7)

14.29%
24.49%
17.49%
12.49%
8.93%
8.92%
8.93%
4.46%

IME 345

Chapter 11 Homework Solution

Spring 2012

PROBLEM 11.23
(3 points)
FIRST COST =
MILES DRIVEN =
O&M FIRST YEAR =
O&M EACH ADDN YR =
SALVAGE % DECLINE =
MARR =

$28,000.00
15,000
$0.505
10.00%
20.00%
9.00%

LIFE
1
2

St
$22,400.00
$17,920.00

O&M
$7,575.00
$8,332.50

St(2)

=28000*(1-20%)^2
CR(2)
=PMT(9%,2,-28000,28000*(1-20%)^2)
O&M(2)
=15000*0.505*(1+10%)^(2-1)
BTEUAO&MC(2) =PMT(9%,2,-NPV(9%,7575,8332.5))
BTEUAC(2)
=7342.97+7937.44
$14,336.00 $6,688.27
$9,165.75
$8,312.14 $15,000.41
$11,468.80 $6,134.86
$10,082.33
$8,699.23 $14,834.08
$9,175.04 $5,665.51
$11,090.56
$9,098.80 $14,764.31 OPTIMUM
$7,340.03 $5,266.12
$12,199.61
$9,510.96 $14,777.08
$5,872.03 $4,925.10
$13,419.57
$9,935.79 $14,860.89
$4,697.62 $4,632.93
$14,761.53
$10,373.36 $15,006.29
$3,758.10 $4,381.75
$16,237.69
$10,823.73 $15,205.48

3
4
5
6
7
8
9

CR
$8,120.00
$7,342.97

MILES
PER MILE

BTEUAO&MC
$7,575.00
$7,937.44

BTEUAC
$15,695.00
$15,280.41