Fidelity Life Insurance has a document imaging system that needs replacement. A local salesperson quoted a cost of $12,000 with an estimated salvage of $800 after 5 or more years. If the system is expected to save $2000 per year in clerical time, find the payback time at 10% per year. As a practice, the office manager purchases equipment only when the payback is less than 8 years. Otherwise, he prefers to lease.
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Fidelity Life Insurance has a document imaging system that needs replacement. A local salesperson quoted a cost of $12,000 with an estimated salvage of $800 after 5 or more years. If the system is expected to save $2000 per year in clerical time, find the payback time at 10% per year. As a practice, the office manager purchases equipment only when the payback is less than 8 years. Otherwise, he prefers to lease. Should the imaging system be purchased or leased?
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- Kingsville plans to buy a street-cleaning machine. A used cleaning vehicle will cost $80,000 and have a $10,000 salvage value at the end of its five year life. A new system with advanced features will cost $160,000 and have a $45,000 salvage value at the end of its five year life. The new system is expected to reduce labor hours compared with the used system. Current street cleaning activity requires the used system to operate 8 hours per day for 20 days per month. Labor costs $50 per hour and MARR is 12% per year. Find the breakeven labor hours for the new system. USE SOLVER FUNCTION IN EXCELYou are in the mail-order business, selling computer peripherals, including high-speed Internet cables, various storage devices such as memory sticks, and wireless networking devices. You are considering upgrading your mail ordering system to make your operations more efficient and to increase sales. The computerized ordering system will cost $250,000 to install and $50,000 to operate each year. The system is expected to last eight years with no salvage value at the end of the service period. The new order system will save $120,000 in operating costs (mainly, reduction in inventory carrying cost) each year and bring in additional sales revenue in the amount of $40,000 per year for the next eight years. If your interest rate is 12%,justify your investment using the NPW method.The owner of a small local flea market rents tables to vendors every Sunday. His only expense is the purchase of the building in which the flea market operates at a cost of $450,000. The owner expects to rent about 20 tables per week (1000 per year), and wishes to receive a 12% annual return on his investment in the building. What gross margin (in dollars) should the owner use?
- A certain factory building has an old lightingsystem. Lighting the building currently costs, on average, $20,000 a year. A lighting consultant tells thefactory supervisor that the lighting bill can be reducedto $8,000 a year if $50,000 is invested in new lightingin the building. If the new lighting system is installed,an incremental maintenance cost of $3,000 per yearmust be taken into account. The new lighting systemhas zero salvage value at the end of its life. If the oldlighting system also has zero salvage value, and thenew lighting system is estimated to have a life of 20years, what is the net annual benefit for this investment in new lighting? Take the MARR to be 12%.Assume the old lighting system will last 20 years.6.43 Your company needs a machine for the nextseven years, and you have two choices (assume anannual interest rate of 15%).• Machine A costs $100,000 and has an annual operating cost of $47,000. Machine A has a useful lifeof seven years and a salvage value of…A data analyst decided to do all design work from home and wants to create a home office. The analyst needs a new computer for $1,900 and printer/scanner for $250. A vendor offers a financing option of a monthly installment of $99 for a period of 24 months. First payment is due at the end of the month of purchase. The vendor will accept either a cash payment upfront or financing over 24 months as mentioned earlier. Rationally, for the vendor, it does not make an economic difference if the customer chooses to pay now or financing (options are equivalent. Therefore, [a] What is the monthly interest rate implied in the vendor's offer? [b] If the engineer requested a 6-month installment instead of 24 months and the vendor agrees for the same interest rate as part [a] what would be the monthly payment be in this case?Shonda & Shonda is a company that does land surveys and engineering consulting. They have an opportunity to purchase new computer equipment that will allow them to render their drawings and surveys much more quickly. The new equipment will cost them an additional $1.200 per month, but they will be able to increase their sales by 10% per year. Their current annual cost and break-even figures are as follows: A. What will be the impact on the break-even point if Shonda & Shonda purchases the new computer? B. What will be the impact on net operating income if Shonda & Shonda purchases the new computer? C. What would be your recommendation to Shonda & Shonda regarding this purchase?
- You are an employee of University Consultants, Limited, and have been given the following assignment. You are to present an investment analysis of a small retail income-producing property for sale to a potential investor. The asking price for the property is $1,400,000; rents are estimated at $179,200 during the first year and are expected to grow at 2.5 percent per year thereafter. Vacancies and collection losses are expected to be 10 percent of rents. Operating expenses will be 35 percent of effective gross income. A fully amortizing 70 percent loan can be obtained at 8 percent interest for 30 years (total annual payments will be monthly payments 12). The property is expected to appreciate in value at 3 percent per year and is expected to be owned for five years and then sold. Required: a. What is the first-year debt coverage ratio? b. What is the terminal capitalization rate? c. What is the investor's expected before-tax internal rate of return on equity invested (BTIRR)? d. What is…You are an employee of University Consultants, Limited, and have been given the following assignment. You are to present an investment analysis of a small retail income-producing property for sale to a potential investor. The asking price for the property is $1,290,000; rents are estimated at $165,120 during the first year and are expected to grow at 2.5 percent per year thereafter. Vacancies and collection losses are expected to be 10 percent of rents. Operating expenses will be 35 percent of effective gross income. A fully amortizing 70 percent loan can be obtained at 7 percent interest for 30 years (total annual payments will be monthly payments × 12). The property is expected to appreciate in value at 3 percent per year and is expected to be owned for five years and then sold. Required: a. What is the first-year debt coverage ratio? Answer: 1.33 b. What is the terminal capitalization rate? c. What is the investor’s expected before-tax internal rate of return on equity invested…You are an employee of University Consultants, Limited, and have been given the following assignment. You are to present an investment analysis of a small retail income-producing property for sale to a potential investor. The asking price for the property is $1,290,000; rents are estimated at $165,120 during the first year and are expected to grow at 2.5 percent per year thereafter. Vacancies and collection losses are expected to be 10 percent of rents. Operating expenses will be 35 percent of effective gross income. A fully amortizing 70 percent loan can be obtained at 7 percent interest for 30 years (total annual payments will be monthly payments × 12). The property is expected to appreciate in value at 3 percent per year and is expected to be owned for five years and then sold. Required: a. What is the first-year debt coverage ratio? b. What is the terminal capitalization rate? c. What is the investor's expected before-tax internal rate of return on equity invested (BTIRR)? d. What…
- A company that sells has proposed to a small public utility company that it purchase a small electronics computer for $1,000,000 to replace ten calculating machines and their operators. An annual service maintenance contract for the computer will be provided at a cost of $100, 000 per year. One operator will be required at a salary of $110, 000 per year and one programmer at a salary of $160, 000. The estimated economical life of the computer is 10 years. The calculating machines costs $8,000 each when new, 5 years ago, and presently can be sold for $2,000 each. They have an estimated life of 8 years and an expected ultimate trade in value of $1, 000 each. Each calculating machine operator receives $85, 000 per year. Fringe Benefits for all labour cost 8% of annual salary. Annual maintenance cost on the calculating machine has been $500 each. Taxes and insurance on all equipment is 2% of the first cost per year. If capital costs the company about 25%, would you recommend the computer…Lewis Securities Inc. has decided to acquire a new market data and quotation system for its Richmond home office. The system receives current market prices and other information from several online data services and then either displays the information on a screen or stores it for later retrieval by the firm’s brokers. The system also permits customers to call up current quotes on terminals in the lobby. The equipment costs $1,000,000 and, if it were purchased, Lewis could obtain a term loan for the full purchase price at a 10% interest rate. Although the equipment has a 6-year useful life, it is classified as a special-purpose computer and therefore falls into the MACRS 3-year class. If the system were purchased, a 4-year maintenance contract could be obtained at a cost of $20,000 per year, payable at the beginning of each year. The equipment would be sold after 4 years, and the best estimate of its residual value is $200,000. However, because real-time display system technology is…Lewis Securities Inc. has decided to acquire a new market data and quotation system for its Richmond home office. The system receives current market prices and other information from several online data services and then either displays the information on a screen or stores it for later retrieval by the firm’s brokers. The system also permits customers to call up current quotes on terminals in the lobby.The equipment costs $1,000,000 and, if it were purchased, Lewis could obtain a term loan for the full purchase price at a 10% interest rate. Although the equipment has a 6-year useful life, it is classified as a special-purpose computer and therefore falls into the MACRS 3-year class. If the system were purchased, a 4-year maintenance contract could be obtained at a cost of $20,000 per year, payable at the beginning of each year. The equipment would be sold after 4 years, and the best estimate of its residual value is $200,000. However, because real-time display system technology is…