Question 2
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A contractor has been awarded the contract to construct a six -miles-long tunnel in a mountainous area. During the five-
year construction period, the contractor will need water from a stream near to the construction site. A pipeline system is
required to convey the water to the construction site and you are asked to choose the best alternative from the
following pipe sizes. The pump will operate 2000 hours per year. The pump and pipe are depreciable, but the salvage
value will cover only the cost of removal at the end of the five years. The lowest interest rate at which the contractor is
willing to invest is 7%. Use present worth method.
2" 3" 4" 5"
Installed cost of pipeline & pump $22,000 $23,000 $25,000 $30,000
Cost per hour for pumping $1.2 $0.65 $0.50 $0.40
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Question 3
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A new equipment has been proposed by engineers to increase the productivity of a certain manual welding operation.
The investment cost is $25,000, and the equipment will have a market value of $5,000 at the end of a study period of five
years. Increased productivity attributable to the equipment will amount to $10,000 per year after operating costs have
been subtracted from the revenue generated by the additional production. If MARR is 10%, is investing in this equipment
feasible? Use annual worth method.
Question 4
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What is the value of a 6%, 10-year bond with a redemption value of $10,000 that pays dividends semi-annually? Assume
the purchaser wishes to earn an 8% return.
Question 5
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A local food canning plant is considering to purchase a tomato-peeling machine. The purchasing manager prepared the
following proformas. If the the manager decides to use MARR of 12%, which machine is the best alternative based on
present worth analysis? Hint: consider the least common multiple as the study period.
Cash flow
Machine A Machine B Machine C
Initial cost
$52,000 $63,000 $67,000
Maintenance & operating costs $15,000 $9,000 $12,000
Annual benefits
$38,000 $31,000 $37,000
Salvage value
$13,000 $19,000 $22,000
Useful life , in years
4
6
12
ALL
Question 6
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A local pizza restaurant incurred the following costs. Suppose that the restaurant manager requested you to identify the
costs which are depreciable.
A. New delivery vehicle.
B. New baking oven.
C. Furnishings in dinning room.
D. Pizza dough and toppings.
E. Wages for casher.
F. Utilities for soda refrigerator.
Question 2
3.00000 points
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A contractor has been awarded the contract to construct a six -miles-long tunnel in a mountainous area. During the five-
year construction period, the contractor will need water from a stream near to the construction site. A pipeline system is
required to convey the water to the construction site and you are asked to choose the best alternative from the
following pipe sizes. The pump will operate 2000 hours per year. The pump and pipe are depreciable, but the salvage
value will cover only the cost of removal at the end of the five years. The lowest interest rate at which the contractor is
willing to invest is 7%. Use present worth method.
2" 3" 4" 5"
Installed cost of pipeline & pump $22,000 $23,000 $25,000 $30,000
Cost per hour for pumping $1.2 $0.65 $0.50 $0.40
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Question 3
3.00000 points
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A new equipment has been proposed by engineers to increase the productivity of a certain manual welding operation.
The investment cost is $25,000, and the equipment will have a market value of $5,000 at the end of a study period of five
years. Increased productivity attributable to the equipment will amount to $10,000 per year after operating costs have
been subtracted from the revenue generated by the additional production. If MARR is 10%, is investing in this equipment
feasible? Use annual worth method.
Question 4
3.00000 points
Save Answer
What is the value of a 6%, 10-year bond with a redemption value of $10,000 that pays dividends semi-annually? Assume
the purchaser wishes to earn an 8% return.
Question 5
3.00000 points
Save Answer
A local food canning plant is considering to purchase a tomato-peeling machine. The purchasing manager prepared the
following proformas. If the the manager decides to use MARR of 12%, which machine is the best alternative based on
present worth analysis? Hint: consider the least common multiple as the study period.
Cash flow
Machine A Machine B Machine C
Initial cost
$52,000 $63,000 $67,000
Maintenance & operating costs $15,000 $9,000 $12,000
Annual benefits
$38,000 $31,000 $37,000
Salvage value
$13,000 $19,000 $22,000
Useful life , in years
4
6
12
ALL
Question 1
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An asset for drilling was purchased and placed in service by a petroleum production company. Its cost basis is $60,000,
and it has an estimated market value of $12,000 at the end of an estimated useful life of 14 years. Compute the
depreciation amount in the third year and book value at the end of the fifth year of life using SL method and 200% DB
method with switchover to SL. In which year does the switchover happen?
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