Barry, Edward A. Lee, David G. Kulakowski , F. Kothari, I. Woodson, James R. Ghilani and Paul R. Cover, Joy A. Sullivan, Elin M. Wicks, C. Hayt Jr. Meriam, L. Reitz, Frederick J. Schilling, Sandra L. Alexander M. Moran, Howard N. Munson, Donald F.
Young, Theodore H. Incropera D. Petrucci; William S. Lang and G. Milic and Z. Bertsekas and John N. Paul DeGarmo, J. Callister, Jr. Simon , Lawrence E. Schulz, Ajit D. Ahuja , Thomas L. Magnanti , James B. Steven C. Atkins, C. Trapp, M. Cady, C. I 6th Ed. Objective: Select the most economic alternative that also meets requirements such as production rate, quality specifications, manufacturability for design specifications, etc. Information: Each alternative must have estimates for life likely 10 years , AOC and other costs e.
Alternatives: For both A and B, some of the required data to perform an analysis are: P and S must be estimated. Training and other cost estimates annual, periodic, one-time must be finalized. Criteria: Can use either present worth or annual worth to select between A and B.
Time from now is In fact, it is not even close to being justified. Then solve for x. Find P. Figure shows spreadsheet functions. Therefore, only one is to be selected, so they are compared against each other. Independent projects accomplish different things. Therefore, none, one, more than one, or all of them can be selected as they are only compared against the do-nothing alternative.
That is, If none of the alternatives under consideration are economically attractive, all of them should be rejected. Total payments are shown in row 30 of the spreadsheet. Plots of FW values by year are shown in the x-y scatter graph below. Develop all feasible plans for the couple and use the summed FW values to determine which is the largest.
Spreadsheet and chart are below. Revised costs and savings are in columns F-H. Since both are positive, neither is valid. Therefore, use See spreadsheet for PW values.
The borrowing rate is used when negative net cash flows are generated in a project. The ROIC value is independent of the re-investment rate. Follow the steps of the modified ROR procedure. Answer is a.
Continue the NCF series starting in year This is the offer based on these estimates. Discuss why this is the correct amount to offer. An incremental ROR analysis must be conducted.
Let P A be the first cost of A. Decision is the same to select Al. Then rank remaining alternatives according to increasing initial investment including DN and compare incrementally. Rank alternatives according to increasing initial investment and compare incrementally: 2, 1, 3, 5, 4. Increment between 2 and 3 3-to-2 comparison is not justified; select machine 2. Here are example responses. This is not necessary since no extra investment is necessary to expand cash flow by three years.
Cash flows for each option are summarized at top of the spreadsheet. Rows show annual estimates for options in increasing order of initial investment: 3, 2, 1, 4, 5. No values other than Do incremental ROR analysis after removing 1 and 2. See row Aw is also the largest for 4. Conclusion: Select option 4 — trade-out with friend. PW vs. Make the values in years 5 through 8 of option 3 equal to the value in cell C6, so they reflect the changes.
Costs are consequences to the government and are included in the denominator. In DBOM contracts, this management responsibility is not placed on the contractor. A sample answer to part to a follows.
Plant manager: sales revenues, customers 2. County commissioner: politics, revenue and budget 4. Security company president: revenue and budget, contract obligations 9.
NCF are savings plus benefits. Use first cost. Difference in annual cost is a benefit to solar. Calculate AW of total costs. Incremental analysis is necessary. Benefits are defined by road usage cost difference. Short route has larger initial cost. W is now incrementally compared to E. Incrementally compare W to E. W is not justified; select location E. Changes from part to part needed should be the estimates and possibly a switching of which options are incrementally justified.
All 3 analyses are done on a rolling spreadsheet shown below. DN, then 2 vs. Select option 1 b Judy: Compare 1 vs. Select option 2 c Chen: Compare 2 vs. DN, then 1 vs. Perform the incremental comparisons J vs. Perform incremental comparison. TA: TA has less cost for same effectiveness; professor is dominated. TA vs. Public planning includes the design of projects and efforts necessary to implement the strategy, once finalized.
Challenger is placed first below. Challenger listed first. For Z to be justified, the incremental comparison of W vs. The benefits would have to increase. Find BW in the incremental comparison. Debt capital loans becomes more expensive and harder to acquire. See plot in problem The answer before taxes is the same as that after taxes. First, determine the after-tax cost of debt capital. Set up the spreadsheet with the three series. Equity rate is 6.
Also, the safe return rate decreased 0. In the event that additional borrowed funds are needed, it may not be possible to obtain them. Available equity funds may have to be depleted to stay afloat or grow as competition challenges the combined companies. Such events may significantly weaken the economic standing of the company. Conclusion: Both financing plans make the project economically attractive. Find WACC first.
However, project R has a return of 6. With gains, the return on equity capital is much larger for the highly leverage investment, but it may be much more risky. VP rated opposite on factors 1 and 3. High score on attribute 1 by Asst. A: 50—50 D—E financing Use relations in case study statement and the results from Question 1. Recommendation: Select plan A with financing.
Spreadsheet shows the hard way develops debt-related cash flows for each year and the easy way uses costs of capital from 1 to plot WACC.
The costs associated with doing so would thus represent the true cost of keeping the presently-owned asset. In doing so, he is likely to miss out on what would have been a very profitable situation in buying the Charger. When this challenger replaces the defender now or later , it will be repeated in succeeding life cycles. ESL is now 8 or 9 years, with a flat AW curve for several years. Therefore, keep the defender three years and then replace it with a used vehicle just like the one that is currently owned.
To make the decision, compare AW values. In keeping the defender, the opportunity to receive money is foregone. This might result in inaccurate pricing of goods or services provided by the challenger. Keep the defender for 3 years 2. Use the defender for 2 years and the challenger for 1 year 3. Use the defender for 1 years and the challenger for 2 years 4. Use the challenger for all three years. Therefore, keep the defender 1 year and then replace it with the challenger b The PW values are placed in the year cell prior to when the year starts for challenger.
Spreadsheet screen shot shows the AW of the current system defender D for its retention period with close-down cost in last year, followed by annual contract cost challenger C for years in effect. Do not replace. Four options are present, but they have the same conclusion. Answer is a The defender should be kept for 2 more years and then replaced with another used machine just like the one presently owned. The ESL is 13 years.
Year 13 is predicted to require the 4th rebuild; the pump will not be used beyond 13 years anyway. Compare the results in 2 and 3 with that in 1 and comment on them. No bundle with X and Y are listed; 12 remain. Considering the selection restrictions, the 9 viable bundles are: DN 4 34 1 13 3 23 Not acceptable bundles: 2, 12, 14, 24, , , Select bundle 4. Select projects A, B and C. Alternatively, use a spreadsheet. Develop a scatter chart. Largest PW is for project Q.
Answer is b The breakeven point falls substantially to , when the lower FC is in effect. Note: To guarantee that the cell computations in column C correctly track when the breakeven point falls below ,, the same IF statement is used in all cells.
With this feature, sensitivity analysis on the , estimate may also be performed. It has the smaller slope of 5 versus 25 for the buy option.
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