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

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CE 3361

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

UPGRADES 128 YEAR 5

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

 

ANSWER THE FOLLOWING QUESTIONS:

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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