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Question: a waste disposal company is considering the replacement of one...

Question details

A waste disposal company is considering the replacement of one of its aging trucks. The key parameters of the three trucks under scrutiny are provided below.

Parameters

Delta

Epsilon

Zeta

1. Initial Cost

($)

250,000

375,000

450,000

2. Revenues

($)

230,000 at EOY1

increasing by 2.5% annually thereafter

195,000 at EOY1

increasing by 3,000 annually thereafter

235,000 at EOY1

decreasing by 1% annually thereafter

3. Operating

costs ($)

140,000 at EOY1

decreasing by 2,000 annually thereafter

125,000 at EOY1

decreasing by 2% annually thereafter

EOY1-EOY4 = 125,000;

EOY5-EOY8 = 135,000

EOY9-EOY12 = 170,000

EOY13-EOY16 = 190,000

4. End-of-life salvage value ($)

-20,000

7,000

-20,000

5. Useful life

(years)

4

8

16

  • EOY = End-of-year
  • Industry Standard = 4 years
  • MARR = 10%
  1. Delta’s Net Future Worth (NFW) (rounded to the nearest $100) of
    a) $78,800; b) $81,900; c) $82,900; d) $84,300.
  1. Epsilon’s Net Present Worth (NPW) (rounded to the nearest $100) is
    a) $89,000; b) $93,700; c) $94,100; d) $95,200.
  1. Zeta’s Net Future Worth (NFW) (rounded to the nearest $100) after 16 years is

a) $678,900; b) $698,600; c) $709,100; d) $743,300.

  1. Delta’s Annual Equivalent Worth (AEW) (rounded to the nearest $100) is
    a) $17,700; b) $18,500; c) $18,900; d) $19,200.
  1. Zeta’s AEW (rounded to the nearest $100) over 30 years (it was repeated several times) is

a) $19,200; b) $19,700; c) $20,100; d) $21,800.

  1. The best truck based on the NFW method is
    a) Delta; b) Epsilon; c) Zeta.
  1. The best truck based on the AEW method is
    a) Delta; b) Epsilon; c) Zeta.
  1. Based on the simple payback method, Delta’s recovery period (to the nearest half or full year) is

a) 2.5; b) 3.0; c) 3.5; d) 4.0.

  1. Based on the simple payback method, Epsilon’s “project balance” after 2 years (rounded to the nearest $100) is

a) $-229,500; b) $-155,900; c) $-59,100; d) $98,800.

  1. Based on the discounted payback method, Epsilon’s recovery period (to the nearest half or full year) is

a) 5.0; b) 6.0; c) 6.5; d) 7.5.

  1. Based on the discounted payback method, Epsilon’s “project balance” after 3 years (rounded to the nearest $100) is

a) $-296,300; b) $-250,400; c) $123,400; d) $129,800.

  1. Based on the simple payback method, Zeta’s recovery period (rounded to the nearest half or full year) is

a) 3.5; b) 4.0; c) 4.5; d) 5.5.

  1. The best truck based on the simple payback method is
    a) Delta; b) Epsilon; c) Zeta.
  1. Delta’s benefit/cost (B/C) ratio (second decimal; no rounding) is
    a) 0.98; b) 1.03; c) 1.08; d) 1.10.
  1. Zeta’s benefit/cost (B/C) ratio (second decimal; no rounding) is
    a) 0.99; b) 1.02; c) 1.06; d) 1.09.
  1. The incremental B/C ratio (second decimal; no rounding) between the Delta and Epsilon trucks is

a) 0.90; b) 0.99; c) 1.03; d) 1.08.

  1. The incremental B/C ratio (second decimal; no rounding) between the Epsilon and Zeta trucks is

a) 0.98; b) 1.05; c) 1.07; d) 1.11.

  1. Delta’s Internal Rate of Return (IRR) (first decimal; no rounding) is
    a) 18.1%; b) 19.8%; c) 20.8%; d) 21.1%.
  1. Epsilon’s Internal Rate of Return (IRR) (first decimal; no rounding) is
    a) 16.0%; b) 16.8%; c) 17.0%; d) 17.3%.
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