Considering installation of automated drilling equipment

Assignment Help Business Economics
Reference no: EM131099405

Drilling, Inc., is considering installation of a new automated drilling equipment. The new equipment can be installed for $12,850,000 today and will have a life of 4 years until technological obsolescence due to rapid advances in drilling control technology. At the end of its 4 year life, its components will have a salvage value of $2,500,000, and it will cost $712,500 to have the equipment removed. The equipment will be depreciated under MACRS. The equipment will produce $8,975,000 additional sales capacity per year due to productivity gains. Additional technical labor cost will be $2,305,000 per year and operating and maintenance costs will be $885,000 per year. The company is in a western state with no corporate income taxes and is in the 35% federal tax bracket. Estimate both the annual net income and annual cash flow. The company’s MARR for this project is 20.0%. Based on net present value estimate, do you recommend installing the automated refining line? What is the equivalent uniform annual worth, and IRR of the project?

Reference no: EM131099405

Questions Cloud

Why are there still so many jobs : Read the article by David Author entitled "Why Are There Still so Many Jobs?". Then write a 300-450 word essay (around 1.5 to 2 double spaced typed pages) that (1) discusses five items you found of interest and (2) for each item, identify whether tha..
The current generation consists : Suppose that the current (first) generation consists of 2 million people, half of whom are women. Assume the total fertility rate is 1.2 and the only way people die is of old age. Instructions: How big will the fourth generation (the great-grandchild..
The natural unemployment rate : Suppose we pursued a policy that made it more difficult for firms to fire their workers (e.g. mandatory severance packages, long notice time, burdensome paperwork, or prior government approval). What do you imagine will happen to the natural unemploy..
Considering installation of automated drilling equipment : Drilling, Inc., is considering installation of a new automated drilling equipment. The new equipment can be installed for $12,850,000 today and will have a life of 4 years until technological obsolescence due to rapid advances in drilling control tec..
Weaken the arguments for active government policy : Which of the following events would strengthen the arguments for using an active government stabilization policy, and which would weaken the arguments for active government policy? Explain why in each case. Structural changes make wages adjust more q..
Solve for the level of equilibrium output in this economy : In the Keynesian model, suppose that the economy has the following values : C = 100 + 0.75*(Y-T) G = 300 I = 200 NX = 0 T = 200. Solve for the level of equilibrium output in this economy. What is the multiplier on government spending? how much would ..
Maker of special handling devices for beverage : A maker of special handling devices for beverage manufacturing purchased an airplane for use by the company's executives. The airplane cost $1,500,000 and has an estimated 7-year life. What is the total amount depreciated (to closest dollar) through ..
What is the benefit-cost ratio of plan : Two plans have been proposed for an express passenger train between Springfield and Kansas City. The plans are summarized in the table below. Costs and benefits are in millions of dollars. Assume a MARR of 10%. If neither plan is done, then there wou..

Reviews

Write a Review

Business Economics Questions & Answers

  Change the user cost of capital arbitrage equation

Suppose that Canada wants to subsidize production from capital. Production is given by Y = A * K^α * L^1−α. The market for labor and capital is competitive, and producers do not own capital. The government pays producers a fraction τ for each unit of..

  Fluctuations in the pace of growth of labor productivity

Participate in a discussion with your classmates regarding where you see the U.S. economy in its business cycle right now, as based on the economic concepts in the textbook. Now that we learned that the real business cycle results from fluctuations i..

  How much will tax revenue rise

What percent of the tax is borne by buyers. If income rises to $40,000, how much will tax revenue rise.

  The producer and consumer surplus in markets

What happens if you are willing to pay $80 to go to a concert, but the ticket prices are only $50. How does this affect the producer and consumer surplus in markets? Provide a detailed response.

  How would you change the organizational architecture

none of the employees makes the effort to do so. How would you change the organizational architecture of the firm to raise profitability?

  Differences in the technologies used to perform

Suppose that prisons hostorically have required inmates to preform, without pay, various cleaning and food preparation jobs within the prison. Now suppose that prsiosners are offered paid work in factory jobs within the prison walls, and that the cle..

  Change if boc could issue sfr commercial paper supported

Would your answer change if BOC could issue SFr commercial paper supported by the revolving credit at 3.5%.

  Comparative statics in solows model

Explain how the following events affect output, capital and consumption per unit of labor in the long run and along the transition according to Solow's Model: The destruction of 30% of the capital stock because of a natural disaster. A permanent incr..

  Normal good-the income and substitution effects

For a normal good, the income and substitution effects

  CVP Analysis-Sustainability-Uncertainty-Decision Tables

With gasoline prices increasing rapidly in recent years, consumers have moved to high miles-per-gallon (mpg) vehicles, in particular hybrid autos that rely on a battery as well as a gasoline engine for even greater mpg. Generate a cost function for e..

  Qmcdonalds add a new tastes and products to menu

q.mcdonalds add a new tastes and products to menu boardsrecently mc donalds announced the launch of its new tastes menu

  Can you think of any financial innovation in the past ten

can you think of any financial innovation in the past ten years that has affected you personally? has it made you

Free Assignment Quote

Assured A++ Grade

Get guaranteed satisfaction & time on delivery in every assignment order you paid with us! We ensure premium quality solution document along with free turntin report!

All rights reserved! Copyrights ©2019-2020 ExpertsMind IT Educational Pvt Ltd