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Please complete the below 6 questions. Show your work!

1. Question 1a and 1b relates to the following table of mutually exclusive alternatives. The planning horizon is 6 years, the cash-flow streams are in after-tax terms, and the after-tax MARR is 12%

 

A0

A1

A2

A6

A8

A9

A10

A14

Investment

$0

$200k

$750k

$950k

$450k

$650k

$1200k

$1400k

Annual Revenue

$0

$250k

$500k

$560k

$200k

$450k

$700k

$760k

Annual Cost

$0

$50k

$20k

$30k

$40k

$90k

$60k

$70k

Salvage Value

$0

$0

$0

$0

$50k

$50k

$50k

$50k

1a. In what order should these alternatives be compared?

1b. Show the present worth on incremental investment calculations and identify the best alternative. Show your work at the same level of detail as possible

Question 2a and 2b relate to the following situation: InterConnect, Inc. Is an Internet service provider (ISP) and is considering buying a network server for $25,000. The end-of-year-1 savage value is expected to be $20,000 and to decrease at a rate of $2000 per year for each year after that. The operating and maintenance costs will start at $2000 per year and increase at a rate of $500 per year for each year after that. InterConnect's MARR is 12%.

2a. Complete the following table for computing the economic life of the network server.

End of Year

(1) Salvage Value if Retired at Year n

 

(2) AE(i) cost if retired in Year n [CR(i)]

 

(3) Operating & Maintenance Costs for Year n

(4) PW(i) of O&M for Year n in Year 0

(5) Sum of Years 0 O&Ms through Year n

(6) AE(i) Cost of Operating for n Years

(7) Total AE(i) if Retired at Year n

1

 

 

 

 

 

 

 

2

 

 

 

 

 

 

 

3

 

 

 

 

 

 

 

4

 

 

 

 

 

 

 

5

 

 

 

 

 

 

 

6

 

 

 

 

 

 

 

7

 

 

 

 

 

 

 

8

 

 

 

 

 

 

 

9

 

 

 

 

 

 

 

10

 

 

 

 

 

 

 

11

 

 

 

 

 

 

 

2b. What is the economic life of the network server and what is the total AE(i) of retiring it at its economic life?

3. Using the economic life calculated in the previous question, what is the implied salvage value of the network server at the end of year 3?

4. The Central research lab of a major multinational corporation needs to upgrade its computer facilities to increase processing capacity. The computer in use now was bought 2 years ago for $650k. Annual operating and maintenance costs are $80k, and the expected life is 7 years, after which the estimated salvage value is $40k. The existing system has a salvage value of $180k today. One option is to supplement the existing system with medium-sized computer that would have an initial cost of $100k, operating and maintenance costs of $12k annually, a life of 5 years, and a salvage value of $19k. Another option is to buy a new, larger system that has the needed capacity. The net cost, accounting for the trade-in value of the existing system, would be $250k. Operating and maintenance costs would be $50k annually, its service life is 5 years, and its salvage value would be $120k. Still another option is to lease a supplemental computer. The initial cost would be $10k and the annual lease costs-which include operation and maintenance-would run $45k at the beginning of each year. The company's MARR is 12% and study period is 5 years. Which is the lab's best option?

5.  Sierra Systems has a CD-ROM labeler that they use to print the labels for their products. By printing the labels in-house, Sierra Systems avoids having to pay an outside printer $5080 annually. The label printer has a remaining useful life of 5 years. The relevant cash-flow instances are listed in the following table.

End of Year

Revenue

O&M Costs

Salvage Value

0

-

-

$3040

1

$5080

$2040

$2640

2

$5080

$3840

$1840

3

$5080

$3640

$1600

4

$5080

$4440

$0

5

$5080

$5240

$0

Given an MARR of 16%, how long should the label printer be kept before retiring it?

6.  AB-Crystallography has a special-purpose chemical analysis machine that it uses in one of its laboratories. By using this machine, AB-C avoids having to subcontract the analysis and this saves them $3000 per year. However, the machine has a remaining useful life of 7 years, and maintenance costs are expected to increase. The estimated cash flows for the chemical analyzer are listed in the following table.

End of Year

Revenue

O&M Costs

Salvage Value

0

-

-

$4000

1

$3000

$1600

$3600

2

$3000

$1800

$3200

3

$3000

$2000

$2800

4

$3000

$2200

$2400

5

$3000

$2400

$2000

6

$3000

$2600

$1600

7

$3000

$2800

$1200

Given an MARR of 18%, what is the best retirement option?

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