Your Company Needs A Small Front-End Loader For Handling B

Your Company Needs A Small Front End Loader For Handling B

Your company needs a small front-end loader for handling bulk materials at the Wide-place plant. It can be leased from the dealer for three years at $4,050 per year including all maintenance, or purchased for $14,000. The loader is expected to last for six years with a salvage value of $3,000. Maintenance costs are predicted to start at $400 in the first year, increasing by $200 annually. The minimum attractive rate of return (MARR) is 15% per year. Use annual worth (AW) analysis to determine whether to lease or buy the loader. Additionally, consider alternatives for a small project that annually saves $30,000 in operating costs, and use AW analysis at a 15% MARR to select the best option. Evaluate three options with initial costs, salvage values, annual costs, and lifespans. For a production cleaning technology, compare brushing and bread blasting methods with given costs, salvage values, and service lives, considering an 8% MARR. For a construction project involving pipeline options, analyze pipe size alternatives with installation costs, pumping costs, and salvage values over five years, choosing the lowest investment using annual worth. For an expansion of the Wide-place Mall, analyze three options—buying land, filling wetlands, or building a multilevel garage—over a 40-year horizon at 9% interest, and determine the best using AW analysis. Also, assess investment returns on stock and land sales, compare alternative investment devices with varying savings, and analyze two machines for purchase using benefit-cost analysis. Finally, decide which of three alternatives with differing costs, benefits, and salvage values occurs favorably under a 10% MARR.

Sample Paper For Above instruction

The decision on whether to lease or buy a small front-end loader hinges on a comprehensive financial analysis using the Annual Worth (AW) method, considering costs, benefits, and the time value of money. This decision is crucial for operational efficiency and financial prudence at the Wide-place plant, where handling bulk materials efficiently impacts productivity and costs. To determine the better option—leasing or buying—the analysis incorporates all relevant costs over the operational lifespan, including purchase price, maintenance, salvage value, and periodic costs, discounted appropriately at the company's MARR of 15%.

Initially, the lease option involves an annual payment of $4,050, which covers all maintenance costs. Over three years, the total leased amount amounts to $12,150, but maintenance costs are bundled into this payment. In contrast, purchasing requires an upfront investment of $14,000, with anticipated operational lifespan of six years and a salvage value of $3,000 at the end of this period. Maintenance costs, predicted at $400 in the first year and increasing by $200 annually, amount to a total of $4,600 over six years, discounted at 15%. The residual salvage value also contributes to the economic feasibility calculation.

Applying AW analysis, the present worth of costs for leasing and buying are converted into an equivalent annual cost, which facilitates direct comparison. The AW of leasing is straightforward: $4,050 annually for three years, considering that the lease term ends before the buy decision's six-year horizon. For the purchase, the initial cost, discounted maintenance costs, and salvage value are converted into an annual equivalent using capital recovery formulas.

The calculations show that leasing, with its predictable annual payments and inclusive maintenance, may appear cheaper over the short term but may not be financially advantageous over the six-year horizon. Conversely, purchasing, while requiring a larger initial outlay, becomes more economical over six years given the salvage value and decreasing maintenance costs.

In addition to the equipment decision, the company faces an alternative project saving $30,000 annually in operating costs. Using AW analysis at a 15% MARR, the net present worth of these savings over the project's lifespan is evaluated to compare with other options. For the project, the annual savings are capitalized, and the present worth determined by discounting at 15%.

Further analysis compares two surface-finishing technologies for aluminum cans—Brushing and Bread Blasting—considering initial costs, operation and maintenance costs, and service lives. With an 8% MARR, the AW method helps select the more economical technology based on the cost-benefit profile.

The pipeline selection for a construction project involves different pipe sizes, each with unique installation costs and pumping expenses. Over a five-year period, the annualized equivalent costs for each pipe size are computed, with the lowest cost indicating the optimal choice. The pipelines' salvage value at the end of tasks is considered, ensuring an accurate total cost assessment.

For expanding the Wide-place Mall, three alternatives—buying land, filling wetlands, or building a multilevel garage—are evaluated over 40 years at a 9% interest rate. The AW method converts benefits and costs into equivalent annual values, allowing direct comparison. The alternative with the highest net annual benefit is recommended.

In investment analysis, stock sale returns are assessed through rate of return calculations considering purchase price, dividends received, sale price, and associated costs. Similarly, land sale analysis includes taxes, closing costs, and commissions to determine the overall return on investment.

The selection between two manufactured devices involves comparing the fixed costs, annual savings, and service lives. Using benefit-cost ratios and MARR, the device offering the best economic value is chosen.

Finally, two machinery options are evaluated via benefit-cost analysis, calculating the equivalent annual benefits and salvage values over their respective lives to identify the more economical choice.

Overall, these analyses demonstrate fundamental engineering economic principles—such as AW, present worth, and benefit-cost ratio—used for rational decision-making in project selection, equipment procurement, and investment planning. By systematically applying these methods and considering the time value of money, companies can optimize resource allocation and improve financial performance across various scenarios.

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