Problem F: Your company is considering buying a new drill press. Refer to the ta

Question

Problem F: Your company is considering buying a new drill press. Refer to the table below to answer questions 19-24 Drill Press 10,000 5 Vr Investment Life Salvage value Annual Savings (B): Annual O&M; Costs (C $2,000 Minimum, attractive rate ofreturn MARR= 8%. Neglect taxes. 19. What are the annual benefits (B) for using the drill press? a $2,000 b $5,000 c 5,400 d $7.200 20. What are the annual total costs (C) for using the drill press? a. $3.800 b. $4,364 c. $4,600 d. $5,04:5 21. What is the benefit-cost ratio (B/C) for the drill press? a. 1.00 b. 1.15 c. 1.32 d. 1.42 22. Should the drill press project be implemented? b. No c. Can't tell d. None of the above 23. What is the Net Present Worth (PW) of the drill press project? a $636 b $2,540 c $3,760 d $4,523 24 What is the Annual Equivalent (AE) of the drill press project? a. $636 b. $2,540 c. $3,760 d. $4,523

Explanation / Answer

F

19.

B.$5000

Working note:

Annual savings = Annual benefits = $5000

20.

B. $4364

Working note:

Let annual investment = UAC

Then,

(initial cost – present value of salvage value) = (10000 – 2000/1.08^5) = UAC*(1-1/1.08^5)/.08

8638.83= UAC*3.99

UAC = 8638.83/3.99 = $2165.12

Total annual cost = UAC + annual O&M cost = 2165.12+2200 = $4365.12 it is nearest to $4364

21.

B.1.15

Working note:

B/C ratio = 5000/4364 = 1.145 or 1.15

22.

A.Yes

Since the value of B/C ratio is greater than 1, then the project should be accepted.

23.

B.$2540

Working note:

Net present worth = (5000-2200)*(1-1/1.08^5)/.08 + 2000/1.08^5 - 10000

Net present worth = $2540 approx.

24.

A. $636

Working note:

2540 = AW*(1-1/1.08^5)/.05 = AW*3.99

AW = 2540/3.99 = $636.6

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