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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 $1,070,000 $120,000 (a) $1,184,000 (b) (c) (d) 3 $917,556 4 $867,734 5 $928,734 6 $906,617 Round to nearest dollar. For Year 2, what is the cash flow before taxes, CFBT? $[cb] For Year 2, what is the taxable income, TI? $[ti] For Year 2, what is the amount of taxes, Taxes? $[x] For Year 2, 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 11%, should they invest in this equipment, YES or NO? [in]

You are analyzing an investment that is expected to generate the following cash flows, in constant dollars: Year NCF, Constant Dollars 0 −[inv],000 1 [y1],000 2 [y1],000 3 [y1],000 Over this timeframe, the general inflation rate ( f ) is expected to be [fbar]%. Your company’s inflation-free interest rate is [ip]%. What is the equivalent present worth of this project at Year 0? (Round answer to nearest dollar.)

A medical diagnostic laboratory plans to spend $2,700,000 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 $900,000 in year 1 and increase by $80,000 each year. Annual operating expenses are expected to be $50,000 in year 1 and increase by $50,000 each year. The company’s combined marginal tax rate is 40%. The company uses a study period of 6 years for these purchases and plans to keep the equipment indefinitely. Round all dollar answers to nearest dollar. For Year 2, what is the cash flow before taxes, CFBT2?  $[cb2] For Year 2, what is the deprecation rate, α2? (round to four decimals)  [a2] For Year 2, what is the depreciation charge, D2?  $[d2] For Year 2, what is the taxable income, TI2?  $[ti2] For Year 2, what is the amount of taxes, Taxes2? $[x2] For Year 2, what is the cash flow after taxes, CFAT2?  $[ca2] Refer to the CFAT summary below.  Use the CFAT that you calculated in part (f) for year 2.  What is the after-tax Rate of Return over the study period? (round to one decimal)  [ror]% Year CFAT,$ 0 −2,700,000 1 726,000 2 CFAT2 from part (f) 3 753,360 4 688,416 5 706,416 6 662,208   h. If their MARR is 14%, should the lab invest in this equipment? (YES or NO)    [in]

To develop Olympic hopefuls, a midwestern city plans to construct a dual-purpose venue: an outdoor public art site that can also be used as a training facility by Breaking and Skateboarding (Street and Park) athletes. Two bids are under consideration. Estimates are given below. The municipality uses an annual interest rate of 10%   Bid 1 Bid 2 Project Life 50 years 50 years Initial Investment $10,000,000 $15,000,000 Present Worth of Benefits $21,812,592 $32,223,147 Present Worth of O&M Costs $1,982,963 $3,965,926 (Round ratios to 2 decimal places) Compute the Benefit-Cost ratio for “Bid 1.”   [p1] Compute the Benefit-Cost ratio for “Bid 2.”   [p2] Based on a Benefit-Cost analysis, which bid should be selected, “Bid 1” or “Bid 2?” (enter 1 or 2) [bc]  

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.)