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Contemporary Engineering Economics 6th Edition by Chan Park
النسخة 6الرقم المعياري الدولي: 978-0134105598Contemporary Engineering Economics 6th Edition by Chan Park
النسخة 6الرقم المعياري الدولي: 978-0134105598 تمرين 21
The Delaware Chemical Corporation is considering investing in a new composite material. R D engineers are investigating exotic metal-ceramic and ceramic-ceramic composites to develop materials that will withstand high temperatures, such as those to be encountered in the next generation of jet fighter engines. The company expects a three-year R D period before these new materials can be applied to commercial products.
The following financial information is presented for management review.
• R D cost: $5 million over a three-year period: $0.5 million at the beginning of year 1, $2.5 million at the beginning of year 2, and $2 million at the beginning of year 3. For tax purposes, these R D expenditures will be expensed rather than amortized.
• Capital investment: $5 million at the beginning of year 4. This investment consists of $2 million in a building and $3 million in plant equipment. The company already owns a piece of land as the building site.
• Depreciation method: The building (39-year real property class with the asset placed in service in January) and plant equipment (seven-year MACRS recovery class).
• Project life: 10 years after a three-year R D period.
• Salvage value: 10% of the initial capital investment for the equipment and 50% for the building (at the end of the project life).
• Total sales: $50 million (at the end of year 4), with an annual sales growth rate of 10% per year (compound growth) during the next five years (year 5 through year 9) and 10% (negative compound growth) per year for the remaining project life.
• Out-of-pocket expenditures: 80% of annual sales.
• Working capital: 10% of annual sales (considered as an investment at the beginning of each production year and investments fully recovered at the end of the project life).
• Marginal tax rate: 40%.
(a) Determine the net after-tax cash flows over the project life.
(b) Determine the IRR for this investment.
(c) Determine the equivalent annual worth for the investment at MARR = 20%.
The following financial information is presented for management review.
• R D cost: $5 million over a three-year period: $0.5 million at the beginning of year 1, $2.5 million at the beginning of year 2, and $2 million at the beginning of year 3. For tax purposes, these R D expenditures will be expensed rather than amortized.
• Capital investment: $5 million at the beginning of year 4. This investment consists of $2 million in a building and $3 million in plant equipment. The company already owns a piece of land as the building site.
• Depreciation method: The building (39-year real property class with the asset placed in service in January) and plant equipment (seven-year MACRS recovery class).
• Project life: 10 years after a three-year R D period.
• Salvage value: 10% of the initial capital investment for the equipment and 50% for the building (at the end of the project life).
• Total sales: $50 million (at the end of year 4), with an annual sales growth rate of 10% per year (compound growth) during the next five years (year 5 through year 9) and 10% (negative compound growth) per year for the remaining project life.
• Out-of-pocket expenditures: 80% of annual sales.
• Working capital: 10% of annual sales (considered as an investment at the beginning of each production year and investments fully recovered at the end of the project life).
• Marginal tax rate: 40%.
(a) Determine the net after-tax cash flows over the project life.
(b) Determine the IRR for this investment.
(c) Determine the equivalent annual worth for the investment at MARR = 20%.
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Given, a chemical company wants to inves...
Contemporary Engineering Economics 6th Edition by Chan Park
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