+1-415-670-9189
info@expertsmind.com
Using an EUAC and a cash flow approach
Course:- Business Economics
Reference No.:- EM13978555




Assignment Help
Assignment Help >> Business Economics

Clear Water Company has a down-hole well auger that was purchased 3 years ago for $30,000. O&M costs are $13,000 per year. Alternative A is to the keep the existing auger. It has a current market value of $12,000 and it will have a $0 salvage value after 7 more years. Alternative B is to buy a new auger that will cost $54,000 and will have a $14,000 salvage value after 7 years. O&M costs are $6,000 for the new auger. Clear Water can trade in the existing auger on the new one for $15,000. Alternative C is to trade in the existing auger on a "treated auger" that requires vastly less O&M cost at only $3,000 per year. It costs $68,000, and the trade-in allowance for the existing auger is $17,000. The "treated auger" will have a $18,000 salvage value after 7 years. Alternative D is to sell the existing auger on the open market and to contract with a current competitor to use their equipment and services to perform the drilling that would normally be done with the existing auger. The competitor requires a beginning-of-year retrainer payment of $10,000. End-of-year O&M cost would be $6,000. MARR is 15% and the planning horizon is 7 years.

a) Clearly show the cash flow profile for each alternative using a cash flow approach (insider's viewpoint approach).

b) Using an EUAC and a cash flow approach, decide which is the more favorable approach.

c) Clearly show the cash flow profile for each alternative using an opportunity cost approach (outsider's viewpoint approach).

d) Using an EUAC comparison and an opportunity cost approach, decide which is the more favorable alternative.




Put your comment
 
Minimize


Ask Question & Get Answers from Experts
Browse some more (Business Economics) Materials
What is the market rate of substitution between food and "all other goods"? On the same graph, show how the Food Stamp program alters the average consumer's budget line. Wou
Suppose Uncle Nacho sells shares of Time Warner stock for $20,000 and puts the proceeds from the sale into his money market mutual fund account. What happens to the value of
“The expected future value of an interest rate in a risk-neutral world is greater than it is in the real world.” In your own words, what does this statement imply about the ma
By the Mid of December 2015, The FEDERAL RESERVE BANK has increase the the target range for the federal funds rate to 1/4 to 1/2 percent. What are the objectives of this inter
When using a supply-and-demand model to illustrate how land rents are set, economists typically draw the supply curve as a vertical line because: a. The supply of land is fixe
In the late nineteenth century, the German sociologist Max Weber described bereaucracies as highly ______ organizations that enabled large numbers of people to get difficult j
In your textbook, there are three methods described that most Americans use to evaluate political developments such as ObamaCare. Using those three methods, describe how someo
American Beauty Bicycle Manufacturing Company Monster Bicycle Manufacturing Company 1234 Ghoul Rd. Underbed, FL 34567 Federated Regulated Economic Associated Consultants Equil