# CALCULATE THE ALTERNATE B CONVENTIONAL BENEFT/COST (B/C) RATIO: Qualified Writers
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PROJECT II B

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1. GIVEN THE FOLLOWING CASH TRANSACTIONS AND CORRESPONDING

ANNUAL WORTH VALUES FOR ALTERNATE B ECONOMIC ANALYSES:

ALTERNATE B

CASH TRANSACTION>ANNUAL WORTH

INITIAL550,000 - \$ 62,057

INVESTMENT

OPERATIONS AND-; 2,500

MAINTENANCE

EVERY 5 YEARS 100 YEAR 10

INSURANCE 850

REVENUE +\$  30,000

INCREASE \$ 10,000/YR

SALVAGE 180,000 13,803

USEFUL LIFE 12 YEARS

INTEREST ON COST 5%/YR

INTEREST ON REVENUE 1.5%/YR

CE 3361

PROJECT II B

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2.  CALCULATE THE ALTERNATE B CONVENTIONAL BENEFT/COST (B/C) RATIO:

(25)

EQUATION:=

ALTERNATE B: B/C =

ALTERNATE B: B/C =

JUSTIFIED

ALTERNATE B: B/C =   ___________________                   YES                     NO

3.  CALCULATE THE ALTERNATE B LIFE CYCLE COST

(20)

EQUATION:   LCCB   =

COST

- \$      2500

+ \$

TOTAL

ALTERNATE B:  LCCB   =  ____________________________

-3-

CE 3361                                                                                 NAME:________________________

PROJECT II B

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4.   GIVEN THE ANNUAL WORTH OF ALTERNATE A AND ALTERNATE B

(60)

ALTERNATE A                                   ALTERNATE B

INTIAL                                 -\$ 36,987                                                -\$ 62,057

INVESTIMENT

OPERATIONS AND            -\$  1,500/YR                                          -\$   2,500/YR

MAINTENANCE

LABOR COSTS                      6 OPERATORS                                  10 OPERATORS

\$10/HR                                               \$ 24/HR

PRODUCTION                       30 POUNDS/HR                                 60 POUNDS/HR

REVENUE                                \$2/POUND                                           \$6/POUND

SALVAGE                                 \$   9,132                                                 \$ 13,803

USEFUL LIFE                            10 YEARS                                            12 YEARS

INTEREST ON COST                   4%/YR                                                   5%/YR

INTEREST ON REVENUE          5%/YR                                                 1.5%/YR

CALCULATE THE COMPOSITE BREAKEVEN QUANTITY FOR ALTERNATE A AND ALTERNATE B

ALTERNATE A                                                   ALTERNATE B

VARIABLE UNIT COST                                    VARIABLE UNIT COSTS

ν   =                                                                         ν   =

ν   =                                                                         ν   =

UNIT REVENUE                                                UNIT REVENUE

r   =                                                                         r    =

-4-

CE 3361                                                                                 NAME:________________________

PROJECT II A                                                                       DATE:________________________

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BREAKEVEN QUANTITY

- FCA   -  ν  ·  QBE   +    RA    +   r   ·   QBE    =

-FCB  -  ν  ·  QBE   +    RB    +   r   ·   QBE

QBE    =     ______________________

-5-

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5A.  CALCULATE THE U.S. GOVERNMENT DEPRECIATION SCHEDULE ON THE

ALTERNATIVE B INITIAL INVESTIMENT: \$550,000 DURING THE FIRST 7-YEAR

TIME PERIOD

YEAR                   DOUBLE DECLINING                                  STRAIGHT LINE

BALANCE                                               DEPRECIATION

1          DDB =                                                           SL =

DDB =                                                           SL =

2          DDB =                                                           SL =

DDB =                                                           SL =

3          DDB =                                                           SL =

DDB =                                                           SL =

4          DDB =                                                           SL =

DDB =                                                           SL =

5           DDB =                                                           SL =

DDB =                                                           SL =

6           DDB =                                                           SL =

DDB =                                                           SL =

7           DDB =                                                           SL =

DDB =                                                           SL =

-6-

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5B  CALCULATE THE U.S. GOVERNMENT DEPRECIATION SCHEDULE ON THE

ALTERNATIVE B INITIAL INVESTIMENT: \$550,000 DURING THE FIRST 7-YEAR

TIME PERIOD

DEPRECIATION SCHEDULE

YEAR                       DEPRECIATION                     REMAINING DEPRECIATION

1                                                                                     \$550,000

2                                                                                 -  \$

3                                                                                    \$

4

5

6

7

 TOTAL

6.  GIVEN A \$20,000 BOND.  THE STATED INTEREST RATE ON THE BOND IS 4.5%

PAID YEARLY.  THE MATURITY DATE IS 25 YEARS.  JOHN EXPECTS A RATE

OF RETURN OF 5%.

6A.  WHAT IS THE FACE VALUE OF THE BOND?_____________

6B.  WHAT IS THE BOND COUPON RATE?_____________

6C.  HOW OLD WILL JOHN BE WHEN THE BOND MATURES?_____________

6 D.  HOW MUCH IS JOHN WILLING TO PAY FOR THE BOND 3 YEARS FROM

NOW?

I     =

I     =

BV    =

BV    =

BV   = ________________________________________

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