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Economics

1. Jim, the owner of Computers-on-Wheels, an on-site repair service, just purchased a $20,000 diagnostics system and software for PCs, laptops, and LANs. During the expected 5-year life, he determines that the annual recovery amount for this investment is $20,000/5 = $4000.

(a) Explain why Jim has mistakenly underestimated the annual increase needed in revenue.

(b) Determine the required annual revenue increase for a 15% per year return.

2. A 600-ton press used to produce composite- material fuel cell components for automobiles using proton exchange membrane (PEM) technology can reduce the weight of enclosure parts up to 75%. At MARR = 12% per year, calculate (a) capital recovery and (b) annual revenue required.

Installed cost = $-3.8 million n = 12 years Salvage value = $250,000

Annual operating costs = $350,000 to start increasing by $25,000 per year

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