Problem 1 - You are asked to provide estimates for new plant equipment that your firm is considering purchasing in response to increased demand for your products. Data has been collected for both the existing old equipment that has been in use at the facility. as well as proposed new equipment. This data is given in the table below (note: mW = mega-watts = 106 watts).
|
Equipment
List
|
Capacity of
Existing Old
Equipment
|
Unit Cost, Old
Equipment
When
Purchased*
|
Power
sizing
Exponent
|
Capacity of
Proposed New
Equipment
|
|
2 Boilers
|
6 mW
|
$350,000
|
0.80
|
12 mW
|
|
2 Generators
|
5 mW
|
$500,000
|
0.60
|
8 mW
|
|
1 Tank
|
80,000 gal
|
4175.000
|
0.66
|
100,000
|
*The old equipment was purchased 5 years ago and general equipment inflation has been 3% per year since then.
In addition to the equipment in the table above, you estimate that an additional $350,000 in equipment purchases will be necessary to accommodate the expansion. What is the total estimate today for equipment for this proposed project?
Problem 2 - Magdalene Industries produces a specialty crafts-person product that requires extensive direct labor hours. Data indicates that 846.2 labor hours were required to produce the third unit in the first production rim, and 783.0 labor hours were required for the fifth unit. Ms. Magdalene hired you as a new plant engineer and is asking you to use this data to determine the learning curve parameter (b) for this process.
Problem 3 - A comparison of data for the last four quarters of the sales volume of a building company and the overall construction volume in a city where the company is located are given the table below.
|
Quarter
|
Company Sales
Volume (million $)
|
City's Total
Construction (million $)
|
|
Q1
|
3
|
40
|
|
Q2
|
2
|
25
|
|
Q3
|
5
|
50
|
|
Q4
|
4
|
45
|
You are asked to answer the following questions:
(a) Determine and express the least-squares regression line that expressed the correlation between company sales and city construction volume.
(b) Determine the correlation coefficient (r) between the two variables.
(c) Obtain a linear extrapolation of sales for a value of $700 million in city construction.
(d) Describe any dangers of using a construction volume outside the original range of $25-30 million to forecast future sales?
Problem 4 - (a) How much should you be willing to pay for a $3,000 Corporate Bond that was issued in 1998 and will mature in 2013? The bond pays semi-annual interest at a 3% nominal rate (compounded semi-annually), and your MARR is 12%. (Assume that we are at the beginning of the current year, 2004)
(b) What would your answer be if you knew that the Corporate Bond in part (a) was going to be "called in" at the end of 2005?
(c) You have an opportunity to purchase a $10,000 Municipal Bond for $6.000 today. You will hold this bond until it matures and is retired 7 years from now. The bond pays interest every 6 months at a rate of 10% nominal semi-annual (compounded semi-annually). Your MARR is 15%. What rate of return, expressed as an annual effective interest rate, are you earning on this investment if you accept it?
Problem 5 - What is the Weighted Average Cost of Capital for the JPL Enterprises, Lid. a global supply chain company, given the capital structure below:
- $175M from bonds at 5% on average.
- $225M from loans at 8.5% on average.
- $400M from stocks estimated at 10%.
- $350M from retained earnings estimated at 18%.
Problem 6 - BeeKay's Honey Bee Fain Ltd. is considering an investment in a new flower pollinating process that will increase the yield and efficiency of their current hive inventory. This new process involves particular machinery. As the only person with engineering economy experience at BeeKay's Honey Bee Farm. Ltd. you are charged with evaluating this opportunity (see project data below).
BeeKay's Honey Bee Farm. Ltd. is considering different options to finance the project. For each financing option listed below (a-d) you are asked to determine the After Tax Present Worth of this project over its useful life:
(a) Use 100% equity sources (i.e. no borrowed money).
(b) Borrow half of the first cost using a loan that requires an equal payment on the principal, plus interest payments of 10%, per year on the remaining balance per year. The loan life is 15 years, and the balance due on the principal will be zero ($0) after the loan life.
(c) Borrow all of the first cost using a loan that requires an equal payment on the principal, plus interest payments of 5% on the remaining balance per year. The loan life is 15 years, and the balance due on the principal will be zero ($0) after the loan life.
(d) Borrow all of the first cost using a loan that specifies interest payments of 15% per year for the life of the loan, and then a single principal payment at the end of the lam. Loan life is 15 years, and the balance due on the principal will be zero ($0) after the loan life.
Make a recommendation to BeeKay's Honey Bee Farm. Ltd. management on which option they should pursue. Also provide an explanation to management why each option not recommended turns out not to be the best option.
BeeKay's Honey Bee Farm. Ltd. Machinery Data:
|
Required Investment Cost in Machinery
|
= $2,700,000
|
|
Annual Increase in Operating. Maintenance. & Support Costs
|
= $215,000
|
|
Annual Operational Savings
|
= $85,000
|
|
Increase in Annual Revenue/Sales
|
= $1,500,000
|
|
Salvage Value of Machinery
|
= $250,000
|
|
Machinery Useful Life
|
= 20 years
|
|
After Tax MARR
|
= 25%
|
|
Tax Rate on Ordinary Income
|
= 50%
|
|
Tax Rate on Re-Captured Depreciation/Losses
|
= 20%
|
|
Tax Rate on Capital Gains
|
= 10%
|
Depreciation: The Accounting Department at BeeKay's Honey Bee Farm. Ltd. has indicated that Alternate MACRS Method depreciation (with MACRS Class Life of 5 years) is to be used for this machinery.
Problem 7 - A national level canine advocacy group called Meet, Catch and Rescue (MCR) has a multi-million dollars budget each year. For the current budgeting cycle, MCR is considering potential projects to more fully meet the goals of the organization. MCR uses the Annual Worth Decision Criteria for decision-making purposes, and has an MARR of 10%. Data for several potential projects is given below:
Project Data for MCR
|
Project
|
First Cost
|
Net Annual Cash Flow (R-E)
|
Project Life
|
|
A1
|
$180,000
|
$60,000
|
5 years
|
|
A2
|
$350,000
|
$110,000
|
5 years
|
|
A3
|
$300,000
|
$90,000
|
5 years
|
|
B1
|
$110,000
|
$45,000
|
5 years
|
|
B2
|
$80,000
|
$35,000
|
5 years
|
|
C1
|
$35,000
|
$25,000
|
5 years
|
Project Relationships: Projects A1, A2 and A3 are mutually exclusive projects; Projects B1 and B2 are mutually exclusive projects; Project B1 or B2 can be selected only if Project A1 or A2 is selected; Project C1 can only be selected if Project A2 is selected.
You are asked to provide the following as it relates to MCR's analysis:
(a) Develop a Binary Table of the Mutually Exclusive Combinations of choices that AICR has. Which single Combination would be recommended for the following capital limitations:
i. No limitation on capital spending
ii. $350,000 limit on capital spending
iii. $275,000 limit on capital spending
(b) Formulate MCR's choices as a 0-1 Linear Programming (LP) problem. Be sure to include the Objective Function and all Constraints that apply. Include constraints for all three cases on capital from Part (a).
Attachment:- Assignment Files.rar