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978-0131434080 Chapter 10
SOLUTIONS TO CHAPTER 10 PROBLEMS New Product and Expansion Analysis Note to instructor: Advise students to use a 40% income tax rate unless directed otherwise. 10-1 (a) Interest Rate 15.00% Purchase Price $ 500,000 Tax Rate 30.00% Sale Price $500,000 […]
978-0131434080 Chapter 11
SOLUTIONS TO CHAPTER 11 PROBLEMS Capital Planning and Budgeting 11-1. Capital financing is normally performed independently of the capital investment (allocation) function where engineering economy studies take place. Thus, capital 11–2. Most engineering economy projects are not concerned with capital […]
978-0131434080 Chapter 13 Part 1
SOLUTIONS TO CHAPTER 13 PROBLEMS Sensitivity Analysis 13-1 If N – project life, i – interest rate, and A – net annual cash flow, we have AW • -$100,000(A/P,i,N) + A + $20,000(A/F,i,N) Net Annual Worth is most sensitive to […]
978-0131434080 Chapter 13 Part 2
13-12 Let X = annual Btu requirement (in 103 Btu) AC(oil) = $80,000(A/P,10%,20) – $4,000 + X($1.10) / (140 x 103 Btu) = $5,400 + $0.008X Annual Costs ($) % chan g e in X Oil Gas -30 7,430 6,125 […]
978-0131434080 Chapter 14
SOLUTIONS TO CHAPTER 14 PROBLEMS Analytical and Simulation Approaches to Risk Analysis 14-1. j E[Aj] σ [ A j] V[Aj] 0 –$10,000 0 0 1-10 $2,000 200 40,000 (a) Annual receipts are statistically independent E[PW] = -$10,000 + $2,000(P/A, 10%,10) […]
978-0131434080 Chapter 15
SOLUTIONS TO CHAPTER 15 PROBLEMS Decision Criteria and Methods for Risk and Uncertainty 15-1. (a) Alternative III dominates alternative I (b) (i) Alternative II has no chance of loss. (ii) Alternative III has 0.3 + 0.5 = 0.8 chance of […]
978-0131434080 Chapter 16
SOLUTIONS TO CHAPTER 16 PROBLEMS Decision Tree Analysis 16-1. 195 16-2. 196 16-3. (a) M – thousands 197 16-3. (continued) (b) Posterior Probabilities, Given Prediction Price Will Go Up, (u) (1) (2) (3) (4)=(2)(3) (5)=(4)/ ∑(4) (Price) P(Price) P(u l […]
978-0131434080 Chapter 18
SOLUTIONS TO CHAPTER 18 PROBLEMS Activity Based Costing and Management 18-1. Successes and failures in ABC implementation have indicated that to succeed in this endeavor, firms need to have a series of characteristics and commitments: Two of the most important […]
978-0131434080 Chapter 19 Part 1
SOLUTIONS TO CHAPTER 19 PROBLEMS Multiple Attribute Decision Making and AHP 19-1. In this typical multiple attribute decision problem, the choice of a dentist is outlined. The students in your class could use this as a starting point for a […]
978-0131434080 Chapter 19 Part 2
19-9 (Continued) justification for the proposal exists without the need for discounting ($3 million expense is offset by $4 million savings within one year Æ 33% ROR).The mortgage model presented is flawed in the $720K annual worth assumption, ludicrous at […]
978-0131434080 Chapter 19 Part 3
PART TWO – BASIC CAPITAL INVESTMENT ANALYSIS: APPLICATIONS Chapters 4-6 introduce the basics of discounted cash flow analysis as a decision tool. Chapters 7 and 8 introduce the complexities of tax considerations and inflation. Since the focus is primarily on […]
978-0131434080 Chapter 2
SOLUTIONS TO CHAPTER 2 PROBLEMS Cost Measurement and The Cost Accounting System 2-1 Variable Overhead Rate = Rv = 75000 / 125000 = 60% of Direct Labor Costing Rate = Rc = 195000 / 125000 = 156% of Direct Labor […]
978-0131434080 Chapter 3
SOLUTIONS TO CHAPTER 3 PROBLEMS Relevant Costs and Revenues and Estimating 3-1. The $5,000.00 purchase price is a sunk cost and therefore irrelevant to the decision at hand. The $500.00 storage cost may be a book cost (i.e., may not […]
978-0131434080 Chapter 4
4-2. (1 + i)20 > 3 20log(1 + i) > log 3 log(1 + i) > (log 3)/20 (1 + i) > 10 0.023856 (1 + i) > 1.056467 i > 0.056467 or i = 6% Note: (1.05)20 = 2.653298 […]
978-0131434080 Chapter 5
5-1. MARR = 12% [Note: the text is in error; the interest rate should be 12%, not 15%] EOY A B C D E 0 -$8,000.00 -$10,000.00 -$12,000.00 -$15,000.00 -$16,000.00 5-2. MARR = 12% [Note: the text is in error; […]
978-0131434080 Chapter 6 Part 1
6-1. MARR = 12% EOY A B C D E 0 -$8,000 -$10,000 -$12,000 -$15,000 -$16,000 1 $2,000 $3,000 $3,200 $3,800 $4,400 2 $2,000 $3,000 $3,200 $3,800 $4,400 6-2. MARR = 12% EOY A B C-B D-B E-B 0 -$8,000 […]
978-0131434080 Chapter 6 Part 2
10 -$57,444 $57,444 $0 -$57,444 11 $2,556 $0 $2,556 $0 12 $40,556 $0 $40,556 $0 6-18. EOY CF[D] CF[B] CF[B-D] B-D(-) B-D(+) B-D (cont’d) 0 -$50,000 -$75,000 -$25,000 $25,000 $0 -$25,000 1 $17,879 $16,212 -$1,667 $1,667 $0 -$1,667 2 $17,879 […]
978-0131434080 Chapter 7 Part 1
SOLUTIONS TO CHAPTER 7 PROBLEMS Consideration of Depreciation and Income Taxes 7–1. B = $40,000, Life = 10 years, SV10 = $4,000 (a) d5 = ($40,000-$4,000)/10 = $3,600 7-2. The cost basis for the machine is B = $25,000 + […]
978-0131434080 Chapter 7 Part 2
7-18. New Capital investment = $18,000; net annual cash flow (before taxes) = $8,000 during year 1-4, and equals $3,000 during years 5-8; estimated salvage value = 0; t = 0.40; MACRS = 5 year recovery period. EOY (A) BTCF […]
978-0131434080 Chapter 8
SOLUTIONS TO CHAPTER 8 PROBLEMS Dealing With Price Changes in Capital Investment Analysis. 8-1. (a) (0) 0 P=$30,000(P/A,5%,15)=$311,391 (b) ir = 1.9%–or 0.019 1.05 0.050.03 −= − 8-2. R$ )0( n= 1 A$n = 2 f = 3% 8-3. R$ […]
978-0131434080 Chapter 9 Part 1
Solutions to Chapter 9 Problems 9-1 Defender (old lift truck): Using the outsider viewpoint, the investment value of the old lift truck is its current market value. 9-2 Option1: Keep old car The investment value of the old car is […]
978-0131434080 Chapter 9 Part 2
9-17 Keep the Defender: (a) EOY BTCF Depr TI T (40%) ATCF 0 – $14,000 — -$4,000 a -10,000 b $1,600 -$12,400 aGain on disposal = -$14,000 – $10,000 = $4,000 (if sold now). bLoss on disposal for defender when […]