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A cherry processing facility in Northern Michigan processes both sweet and tart cherries for local growers. The facility needs to install a new cherry pitter. An analyst recently obtained the following estimates. Preliminary feasibility study (this year, year 0) $3,000 Purchase & install system (this year, year 0) $230,000 Annual operating costs (years 1-8) $13,000 in year 1, increasing by $3,000 each year Salvage value (year 8) $23,000 Other phase-out activities (year 8) $2,250 The cherry pitter would be used for eight years. The facility uses a before-tax MARR of 10% per year for these types of decisions. What is the capital recovery (CR) cost of the system? [cr] What is the annual equivalent worth of the operating costs? [aoc] What is the annual equivalent cost of this project? [aec]

To reduce process lead time, a manufacturer is analyzing a proposed project. The company’s market interest rate is [mir]%. The general inflation rate over the life of the project is expected to be [fbar]%. What is the inflation-free interest rate that should be used in the analysis? (Answer as a percentage, to two decimal places.)

A manufacturer plans to spend $3,700,000 on equipment. The equipment will be depreciated using the MACRS method with a 5-year recovery period. The manufacturer plans to keep the equipment indefinitely and uses a study period of 6 years for these types of purchases. Annual operating expenses are expected to be $50,000 in year 1 and increase by $70,000 each year. Gross income is expected to be $900,000 in year 1 and increase by $170,000 each year. A portion of the after-tax cash flow analysis is shown below. The manufacturer ’s combined marginal tax rate is 39%. Year GI OE CFBT Dt TI Taxes CFAT 0 −$3,700,000 1 $807,100 2 $1,041,260 3 $917,556 4 $1,410,000 $260,000 (a) $426,240 (b) (c) (d) 5 $928,734 6 $906,617 Round to nearest dollar. For Year 4, what is the cash flow before taxes, CFBT? $[cb] For Year 4, what is the taxable income, TI? $[ti] For Year 4, what is the amount of taxes, Taxes? $[x] For Year 4, what is the cash flow after taxes, CFAT? $[ca] What is the after-tax Rate of Return over the study period? [ror]%  (one decimal) If the company’s MARR is 14%, should they invest in this equipment, YES or NO? [in]

A small bakery needs to purchase a planetary floor mixer (with guards and accessories) and must decide between two models. The bakery evaluates kitchen equipment over a 4-year study period. Estimates for the two models are given below. The salvage values are not expected to change. Model A Model B First cost, $ 15,000 16,500 Annual maintenance & operating costs, $ per year 3,400 1,700 Salvage value 1,500 1,650 Life, years 5 8 The effective annual interest rate is 10%. What is the present worth of the cash flow for Model A that should be used in the analysis? [pwa] The net present worth of the cash flows for Model B is −$20,760. Based on a present worth analysis, which model should be selected? [sel]

A medical diagnostic laboratory plans to spend $1,900,000 on equipment to provide pathology services. The equipment will be depreciated using the MACRS method and a 5-year recovery period. Gross income is expected to be $750,000 in year 1 and increase by $30,000 each year. Annual operating expenses are expected to be $150,000 in year 1 and increase by $20,000 each year. The company’s combined marginal tax rate is 39%. The company uses a study period of 6 years for these purchases and plans to keep the equipment indefinitely. For Year 2, what is the cash flow before taxes, CFBT2? (nearest dollar) $[cb2] For Year 2, what is the deprecation rate, α2? (four decimals) [a2] For Year 2, what is the depreciation charge, D2? (nearest dollar) $[d2] For Year 2, what is the taxable income, TI2? (nearest dollar) $[ti2] For Year 2, what is the amount of taxes, Taxes2? (nearest dollar) $[x2] For Year 2, what is the cash flow after taxes, CFAT2? (nearest dollar) $[ca2] Refer to the CFAT summary below.  Use the CFAT that you calculated in part (f) for year 2.  What is the after-tax Rate of Return over the study period? (one decimal) [ror]% Year CFAT,$ 0 −1,900,000 1 514,200 2 CFAT2 from part (f) 3 520,472 4 469,663 5 475,763 6 439,182   h. If their MARR is 14%, should the lab invest in this equipment? (YES or NO) [in]

A company is considering an investment that is expected to generate the following cash flows, in actual dollars: Year, n NCF, Actual Dollars 0 −$[inv],000 1 [y1],000 2 [y1],000 3 [y1],000 The general inflation rate ( f ) during this period is expected to be [fbar]%. The company’s market interest rate is [mir]%. What is the equivalent present worth of this investment at Year 0? (Round answer to nearest dollar.)

A manufacturer is considering an investment to increase process cycle efficiency. Over the life of the project, the general inflation rate is expected to be [fbar]%. The company uses a market interest rate of [mir]%. What is the inflation-free interest rate that should be used in the analysis? (Answer as a percentage, to two decimal places.)

If the inflation rate is expected to be [x]% next year and [y]% the following year, what is the expected average inflation rate over this 2-year period? (Answer as a percentage, to two decimal places.)

A manufacturer must purchase equipment to inspect planetary gear sets. Inspection equipment purchases are evaluated over a 3-year study period. The quality engineer obtained the estimates below for two different inspection methods. One of the two methods must be chosen. The salvage values are not expected to change over the life of either method. Method A Method M First cost, $ 730,000 876,000 Annual maintenance & operating costs, $ per year 109,500 87,600 Salvage value, $ 65,700 78,840 Life, years 4 7 The effective annual interest rate is 9%. What is the present worth of the cash flows for Method A that should be used in the analysis? [npwa] The net present worth of the cash flows for Method M is −$1,036,860. Based on a present worth analysis, which method should the manufacturer select? [select]

Two systems are being evaluated to reduce process lead time. One of the systems must be selected. An 8-year study period will be used for the analysis. The interest rate is 8% per year. System 1 System 2 First cost, $ 37,000 84,000 Annual O&M, $/year 47,000 61,000 Benefits, $/year 120,000 160,000 Disbenefits, $/year 29,000 0 (Round ratios to 2 decimal places) What is the Benefit-Cost ratio for System 1?   [v1] What is the Benefit-Cost ratio for System 2?   [v2] Based on a Benefit-Cost analysis, which System should be selected, 1 or 2?   [bc]