| Question | What is the difference between disbenefits and costs? |
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| Subject | business-economics |
Order the answer to: What is the difference between disbenefits and costs?
Order the answer to: I don’t know whether to sell it, expand it, lease
| Question | “I don’t know whether to sell it, expand it, lease it, or what. But I don’t think we can keep doing the same thing for many more years. What I really want to do is to keep it for 5 more years, then sell it for a bundle,” Elmer Kettler said to his wife, Janise, their son, John Kettler, and new daughter-in-law, Suzanne Gestory, as they were gathered around the dinner table. Elmer was sharing thoughts on Gulf Coast Wholesale Auto Parts, a company he has owned and operated for 25 years on the southern outskirts of Houston, Texas. The business has excellent contracts for parts supply with several national retailers operating in the area-NAPA, AutoZone, O’Reilly, and Advance. Additionally, Gulf Coast operates a rebuild shop serving these same retailers for major automobile components, such as carburetors, transmissions, and air conditioning compressors. At his home after dinner, John decided to his father with an important and difficult decision: What to do with his business? John graduated just last year with an engineering degree from a major state university in Texas, where he completed a course in engineering economy. Part of his job at Energcon Industries is to perform basic rate of return and present worth analyses on energy management proposals. Over the next few weeks, John outlined five options, including his dad’s favorite of selling in 5 years. John summarized all the estimates over a 10-year horizon. The options and estimates were given to Elmer, and he agreed with them. Option 1: Remove rebuild. Stop operating the rebuild shop and concentrate on selling wholesale parts. The removal of the rebuild operations and the switch to an “all-parts house” are expected to cost $750,000 in the first year. Overall revenues will drop to $1 million the first year with an expected 4% increase per year thereafter. Expenses are projected at $0.8 million the first year, increasing 6% per year thereafter. Option 2: Contract rebuild operations. To get the rebuild shop ready for an operations contractor to take over will cost $400,000 immediately. If expenses stay the same for 5 years, they will average $1.4 million per year, but they can be expected to rise to $2 million per year in year 6 and thereafter. Elmer thinks revenues under a contract arrangement can be $1.4 million the first year and can rise 5% per year for the duration of a 10-year contract. Option 3: Maintain status quo and sell out after 5 years (Elmer’s personal favorite). There is no cost now, but the current trend of negative net profit will probably continue. Projections are $1.25 million per year for expenses and $1.15 million per year in revenue. Elmer had an appraisal last year, and the report indicated Gulf Coast Wholesale Auto Parts is worth a net $2 million. Elmer’s wish is to sell out completely after 5 more years at this price, and to make a deal that the new owner pay $500,000 per year at the end of year 5 (sale time) and the same amount for the next 3 years. Option 4: Trade-out. Elmer has a close friend in the antique auto parts business who is making a “killing,” so he says, with e-commerce. Although the possibility is risky, it is enticing to Elmer to consider a whole new line of parts, but still in the basic business that he already understands. The trade-out would cost an estimated $1 million for Elmer immediately. The 10-year horizon of annual expenses and revenues is considerably higher than for his current business. Expenses are estimated at $3 million per year and revenues at $3.5 million each year. Option 5: Lease arrangement. Gulf Coast could be leased to some turnkey company with Elmer remaining the owner and bearing part of the expenses for building, delivery trucks, insurance, etc. The first-cut estimates for this option are $1.5 million to get the business ready now, with annual expenses at $500,000 per year and revenues at $1 million per year for a 10-year contract. John with the analysis by doing the following: 1. Develop the actual cash flow series and incremental cash flow series (in $1000 units) for all five options in preparation for an incremental ROR analysis. 2. Discuss the possibility of multiple rate of return values for all the actual and incremental cash flow series. Find any multiple rates in the range of 0% to 100%. 3. If John’s father insists that he make 25% per year or more on the selected option over the next 10 years, what should he do? Use all the methods of economic analysis you have learned so far (PW, AW, ROR) so John’s father can understand the recommendation in one way or another. 4. Prepare plots of the PW versus i for each of the five options. Estimate the breakeven rate of return between options. 5. What is the minimum amount that must be received in each of years 5 through 8 for option 3 (the one Elmer wants) to be best economically? Given this amount, what does the sale price have to be, assuming the same payment arrangement as presented above? |
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| Subject | business-economics |
Order the answer to: Multiple Choice Questions 1. Helical Systems, Inc. uses a minimu
| Question | (a) 0 = ?? 10,000 + 3000(P/A, ??i*, 3) + 1000(P/F, ??i*, 3) (b) 0 = ?? 40,000(A/P, ??i*, 3) ?? 15,000 + 5000(A/F, ??i*, 3) (c) 0 = ?? 50,000(A/P, ??i*, 3) ?? 12,000 + 6000(A/F, ??i*, 3) (d) 0 = ?? 10,000 ?? 3000(P/A, ??i*, 3) + 1000(P/F, ??i*, 3) 2. For the four independent projects shown, the one or ones to select using a of 14% per year are: Rate of Return, Project % per Year A ……….. 14 B ……….. 12 C ……….. 15 D ……….. 10 (a) Only C (b) Only A and C (c) Only A (d) Can??t tell; need to conduct incremental Analysis Problems 3 through 5 are based on the following information. Five alternatives are being evaluated by the incremental rate of return method. 3. If the projects are mutually exclusive and the minimum attractive rate of return is 14% per year, the best alternative is: (a) B (b) C (c) D (d) E 4. If the projects are mutually exclusive and the is 20% per year, the best alternative is: (a) B (b) C (c) D (d) E 5. If the projects are independent, instead of mutually exclusive, the one or ones to select at an of 18% per year are: (a) B and C (b) B, D, and E (c) D and E (d) B, C, andE |
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| Subject | business-economics |
Order the answer to: Multiple Choice Questions 1. When conducting a rate of return
| Question | Multiple Choice Questions 1. When conducting a rate of return (ROR) analysis involving multiple mutually exclusive alternatives, the first step is to: (a) Rank the alternatives according to decreasing initial investment cost (b) Rank the alternatives according to increasing initial investment cost (c) Calculate the present worth of each alternative using the (d) Find the LCM between all of the alternatives 2. In comparing mutually exclusive alternatives by the ROR method, you should: (a) Find the ROR of each alternative and pick the one with the highest ROR (b) Select the alternative whose incremental ROR is the highest (c) Select the alternative with ROR ? that has the lowest initial investment cost (d) Select the alternative with the largest initial investment that has been incrementally justified 3. When comparing independent projects by the ROR method, you should: (a) Find the ROR of each project and pick the ones with the highest ROR (b) Select all projects that have an overall ROR ? (c) Select the project with an overall ROR ? that involves the lowest initial investment cost (d) Select the project with the largest initial investment that has been incrementally justified 4. Of the following scenarios, alternative Y requires a higher initial investment than alternative X, and the is 20% per year. The only scenario that requires an incremental investment analysis to s elect an alternative is that: (a) X has an overall ROR of 22% per year, and Y has an overall ROR of 24% per year (b) X has an overall ROR of 19% per year, and Y has an overall ROR of 23% per year (c) X has an overall ROR of 18% per year, and Y has an overall ROR of 19% per year (d) X has an overall ROR of 28% per year, and Y has an overall ROR of 26% per year 5. Alternatives whose cash flows (excluding the ) are all negative are called: (a) Revenue alternatives (b) Nonconventional alternatives (c) Cost alternatives (d) Independent alternatives |
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| Subject | business-economics |
Order the answer to: For these alternatives, the sum of the incremental cash flows
| Question | (a) $2500 (b) $3500 (c) $6000 (d)$8000 |
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| Subject | business-economics |
Order the answer to: The U.S. Bureau of Reclamation is considering five national park
| Question | The U.S. Bureau of Reclamation is considering five national park projects shown below, all of which can be considered to last indefinitely. At a of 7.5% per year, determine which should be selected, if they are (a) Independent (b) Mutuallyexclusive. |
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| Subject | business-economics |
Order the answer to: The plant manager at Automaton Robotics is looking at the
| Question | The plant manager at Automaton Robotics is looking at the summarized incremental rate of return information shown below for five mutually exclusive alternatives, one of which must be chosen. The table includes the overall ROR and the incremental comparison of alternatives. Which alternative is best if the minimum attractive rate of return is (a) 15% per year (b) 12% peryear? |
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| Subject | business-economics |
Order the answer to: Five mutually exclusive revenue alternatives that have infinite
| Question | Five mutually exclusive revenue alternatives that have infinite live s are under consideration for increasing productivity in a manufacturing operation. The initial costs and cash flows of each project are shown. If the is 14.9% per year, which alternative should beselected? |
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| Subject | business-economics |
Order the answer to: The five alternatives shown here are being evaluated by the
| Question | The five alternatives shown here are being evaluated by the rate of return method. (a) If the alternatives are mutually exclusive and the is 26% per year, which alternative should be selected? (b) If the alternatives are mutually exclusive and the is 15% per year, which alternative should be selected? (c) If the alternatives are independent and the is 15% per year, which alternative(s) should beselected? |
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| Subject | business-economics |
Order the answer to: Five revenue projects are under consideration by General Dynamic
| Question | Five revenue projects are under consideration by General Dynamics for improving material flow through an assembly line. The initial cost in $1000 and the life of each project are as follows (revenue estimates are not shown): An engineer made the comparisons shown below. From the calculations, determine which project, if any, should be undertaken if the company’s is (a) 11.5% per year (b) 13.5% per year. If other calculations are necessary to make a decision, state which ones. Comparison Incremental Rate of Return, % B vs DN …………13% A vs B …………19% D vs DN …………11% E vs B ………….15% E vs D ………….24% E vs A ………….21% C vs DN ………… 7% C vs A …………19% E vs DN …………12% A vs DN …………10% E vs C ………….33% D vs C ………….33% D vs B………….29% |
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| Subject | business-economics |
