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) $4,000 Purchase & install system (this year, year 0) $240,000 Annual operating costs (years 1-8) $14,000 in year 1, increasing by $3,000 each year Salvage value (year 8) $24,000 Other phase-out activities (year 8) $3,000 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? What is the annual equivalent worth of the operating costs? What is the annual equivalent cost of this project?

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? 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?

You are analyzing an investment that is expected to generate the following cash flows, in actual dollars: Year, n NCF, Actual Dollars 0 −$,000 1 ,000 2 ,000 3 ,000 Over this timeframe, the general inflation rate ( f ) is expected to be %. Your company’s market interest rate is %. What is the equivalent present worth of this investment at Year 0? (Round answer to nearest dollar.)

A hospital plans to purchase new laboratory equipment. Laboratory equipment purchases are evaluated over a 4-year study period. Two manufacturers submitted the estimates below, and the salvage values are not expected to change. One of the manufacturers must be chosen. Manufacturer A Manufacturer B First cost, $ 17,000 18,700 Annual maintenance & operating costs, $/year 3,400 1,700 Salvage value, $ 1,700 1,870 Life, years 5 8 The effective annual interest rate is 8%. What is the present worth of the cash flow for Manufacturer A that should be used in the analysis? The net present worth of the cash flows for Manufacturer B is −$23,000. Based on a present worth analysis, which vendor should the school select?

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

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) $ For Year 2, what is the deprecation rate, α2? (four decimals) For Year 2, what is the depreciation charge, D2? (nearest dollar) $ For Year 2, what is the taxable income, TI2? (nearest dollar) $ For Year 2, what is the amount of taxes, Taxes2? (nearest dollar) $ For Year 2, what is the cash flow after taxes, CFAT2? (nearest dollar) $ 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) % 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)

Which of the following tax deductions is not a real cash flow?  

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?   What is the Benefit-Cost ratio for System 2?   Based on a Benefit-Cost analysis, which System should be selected, 1 or 2?  

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

This is an Honorlock practice test