1. RR must build a tunnel to maintain his access around the mountain. The tunnel

Question

1. RR must build a tunnel to maintain his access around the mountain. The tunnel could be fabricated of normal steel for an initial cost of $30,000 and should last for 12 years. Maintenance will cost $1,000 per year.

Another option would be to use corrosion resistant steel, which will last for 12 years, with annual maintenance cost of $100. In 12 years there would be no salvage value for either bridge. RR pays combined federal and state taxes at the 45% marginal rate and uses straight-line depreciation. If the after tax MARR is 12%, what is the maximum amount that should be spent on the corrosion-resistant tunnel?

Enter your answer as follow: 123456.78

2. A corporate expects to receive $37948 each year for 15 years if a particular project is undertaken. There will be an initial investment of $112005. The expenses associated with the project are expected to be $7317 per year. Assume straight-line depreciation, a 15-year useful life, and no salvage value. Use a combined state and federal 48% marginal tax rate, MARR of 8%, determine the project's after-tax net present worth.

Enter your answer as follow: 123456.78

3. A material handling system was purchased 3 years ago for $120445. Two years ago it required substantial upgrading at a cost of $16230. It once again is requiring an upgrading cost of $23327. Alternately, a new system can be purchased today at a cost of $210805, with a salvage value of $19518. The existing machine could be sold today for $52375. In an economic replacement analysis, what first cost should be assigned to the existing system?

Enter your answer as follow: 123456.78

Explanation / Answer

tunnel total Cost = initial cost *PVF + maintenance cost Less tax savings due to depreciation * PVF

   = 30000*1 +(1000-1125)* 6.19

   = 29226.25

Let amount spent on the corrosion-resistant tunnel be X

Resistanat tunnel cost = initial cost *PVF + maintenance cost Less tax savings due to depreciation * PVF

   29226.25 = X*1 +(100-X*45%/12)*6.19

   4721.5 = 100X - .0375 X^2

X =

Present value of cash outflow =

initial investment = $112005 *1 = 112005

Present value of cash inflow =($37948 -  $7317 = 30631 Less tax savings due to depreciation) * PVF

=(30631 - 112005/15* 48%) * 8.559

= 231493.9

net present worth = 231493.9- 112005 = 119488.9

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