EDIT: This is the question word-for-word, no Tax rate was provided. A seafood co
ID: 2729043 • Letter: E
Question
EDIT: This is the question word-for-word, no Tax rate was provided.
A seafood company is planning an expansion to a cold storage facility. Three alternative site-design proposals are being considered that use a MARR of 10-percent. Plans A and B require an expenditure of $350,000 for land which will retain its value in 10 years, while plan C requires $425,000 for land which will also retain its value in 10 years. The estimated income increase due to facility availability is annualized at $248,000 per year. The company requires that a life of 10 years be used for the analysis. Data, all in dollars, associated with the project are as follows:
Evaluate which proposal to recommend using the EAW criterion.
Explanation / Answer
Hence Proposal B should be selected.
Analysis of Proposal A Year 0 Year 1 Year 2 Year 3 Year 4 Year 5 Year 6 Year 7 Year 8 Year 9 Year 10 Total Land -3,50,000 -3,50,000 Building & Installation -6,00,000 -6,00,000 Compressor -1,00,000 -1,00,000 Annualized Increase in Income 2,48,000 2,48,000 2,48,000 2,48,000 2,48,000 2,48,000 2,48,000 2,48,000 2,48,000 2,48,000 24,80,000 Energy Cost -65,000 -68,000 -71,000 -74,000 -77,000 -80,000 -83,000 -86,000 -89,000 -92,000 -7,85,000 Annual Maintenance Cost -20,000 -20,000 -20,000 -20,000 -20,000 -20,000 -20,000 -20,000 -20,000 -20,000 -2,00,000 Salvage Value of Land 3,50,000 3,50,000 Salvage Value of Compressor 35,000 35,000 Net Cash Flows -10,50,000 1,63,000 1,60,000 1,57,000 1,54,000 1,51,000 1,48,000 1,45,000 1,42,000 1,39,000 5,21,000 8,30,000 Discounting Factor @ MARR 10% 1.00 0.91 0.83 0.75 0.68 0.62 0.56 0.51 0.47 0.42 0.39 Discounted Cash Flow -10,50,000 1,48,182 1,32,231 1,17,956 1,05,184 93,759 83,542 74,408 66,244 58,950 2,00,868 31,325 NPV of Proposal A is $31,325 Analysis of Proposal B Year 0 Year 1 Year 2 Year 3 Year 4 Year 5 Year 6 Year 7 Year 8 Year 9 Year 10 Total Land -3,50,000 -3,50,000 Building & Installation -7,00,000 -7,00,000 Compressor -1,35,000 -1,35,000 Annualized Increase in Income 2,48,000 2,48,000 2,48,000 2,48,000 2,48,000 2,48,000 2,48,000 2,48,000 2,48,000 2,48,000 24,80,000 Energy Cost -48,000 -50,000 -52,000 -54,000 -56,000 -58,000 -60,000 -62,000 -64,000 -66,000 -5,70,000 Annual Maintenance Cost -15,000 -15,000 -15,000 -15,000 -15,000 -15,000 -15,000 -15,000 -15,000 -15,000 -1,50,000 Salvage Value of Land 3,50,000 3,50,000 Salvage Value of Compressor 43,000 43,000 Net Cash Flows -11,85,000 1,85,000 1,83,000 1,81,000 1,79,000 1,77,000 1,75,000 1,73,000 1,71,000 1,69,000 5,60,000 9,68,000 Discounting Factor @ MARR 10% 1.00 0.91 0.83 0.75 0.68 0.62 0.56 0.51 0.47 0.42 0.39 Discounted Cash Flow -11,85,000 1,68,182 1,51,240 1,35,988 1,22,259 1,09,903 98,783 88,776 79,773 71,672 2,15,904 57,481 NPV of Proposal B is $57,481 Analysis of Proposal C Year 0 Year 1 Year 2 Year 3 Year 4 Year 5 Year 6 Year 7 Year 8 Year 9 Year 10 Total Building -4,25,000 -4,25,000 Building & Installation -4,00,000 -4,00,000 Compressor -85,000 -85,000 Annualized Increase in Income 2,48,000 2,48,000 2,48,000 2,48,000 2,48,000 2,48,000 2,48,000 2,48,000 2,48,000 2,48,000 24,80,000 Energy Cost -65,000 -68,500 -72,000 -75,500 -79,000 -82,500 -86,000 -89,500 -93,000 -96,500 -8,07,500 Annual Maintenance Cost -50,000 -50,000 -50,000 -50,000 -50,000 -50,000 -50,000 -50,000 -50,000 -50,000 -5,00,000 Salvage Value of Land 4,25,000 4,25,000 Salvage Value of Compressor 18,000 18,000 Net Cash Flows -9,10,000 1,33,000 1,29,500 1,26,000 1,22,500 1,19,000 1,15,500 1,12,000 1,08,500 1,05,000 5,44,500 7,05,500 Discounting Factor @ MARR 10% 1.00 0.91 0.83 0.75 0.68 0.62 0.56 0.51 0.47 0.42 0.39 Discounted Cash Flow -9,10,000 1,20,909 1,07,025 94,666 83,669 73,890 65,197 57,474 50,616 44,530 2,09,928 -2,097 NPV of Proposal C is $7,542Related Questions
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