QUESTION 6 2 points Save Answer Motors R Us requires a specific painting process

Question

QUESTION 6 2 points Save Answer Motors R Us requires a specific painting process for one its automobiles that will be manufactured for exactly eight years. Three options are available. Neithe option 2 nor option 3 can be repeated after its process life. However option 1 will always be available at the same cost during the period of eight years. Here are the options: Option 1 is to subcontract out the process at a cost of $116,000 per year. Option 2 costs $151,000 immediately and has annual operating and labor costs of $85,000 and a useful service life of eight years with a salvage value of $41,000. Option 3 costs $118,000 immediately and has annual operating and labor costs of $75,000 and a useful service life of five years with a salvage value of $23,000. For years six through eight, the firm will follow option Enter the "net present cost. forthe option that you would recommend if i-14.8%. Enter your answer as positive number."

Explanation / Answer

Calculations are done using BA II plus calculator:

1. 116000 PMT, 8 N, 14.80 I/ Y, CPT PV

Present Cost= $523970.61

2. Go to cash flow mode:

C0= -151000

C1= -85000 , F 7

C2= -85000+ 41000= -44000

14.8 I

CPT PV - 521353.06

Present Cost is $ 521353.06

3. C0= -118000

C1= -75000 F4

C2= -75000+23000= -52000

C3= 116000 F3

14.8 I/Y

NPV CPT

NPV= -225799.58

Present Cost = $ 225799.58

As cost is lower under option 3, we should recommend option 3.

Related Questions

Navigate

• Browse (All)
• Browse Q
• Subjects

---

---

Integrity-first tutoring: explanations and feedback only — we do not complete graded work. Learn more.