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3 years ago

A new highway is to be constructed.

Business

1 answer:

baherus [9]3 years ago

6 0

Answer:

Desing B

Total Present worth $ 502.485,35‬

Annual worth: $ 49,722.003

Option 2:

Total Present worth $ 666.441,33‬

Annual worth: $ 53,845.798

Explanation:

<h2>Desing A</h2>

$85 x 5280 = 448,800

$4 x 3 x 5280 = 63,360

$8000 x 4 = 32,000

total cost: 544,160‬

Annual cost:

11,800 + 300 = 12,100

PV of the annual maintenance:

$C \times \frac{1-(1+r)^{-time} }{rate} = PV\\$

C 12,100.00

time 16

rate 0.06

$12100 \times \frac{1-(1+0.06)^{-16} }{0.06} = PV\\$

PV $122,281.3328

Present worth:

total cost to construct 544,160‬ + maintenance $122,281.33 = 666.441,33

Annual worth:

$PV \div \frac{1-(1+r)^{-time} }{rate} = C\\$

PV 544,160

time 16

rate 0.06

$544160 \div \frac{1-(1+0.06)^{-16} }{0.06} = C\\$

C $ 53,845.798

<h2>Desing B</h2>

a mile is equivalent to 5,280 foot

paviment $40 x 5,280 = $ 211,200

sood ditched 2 per foot x 5,280 foot per mile x $1.40 = $ 12,038.4

pipe culvert 2,200 x 2 = 4,400

Total value to construct: 227.638,4‬

PV of maintenance:

replacement 2,400 x 2 = 4,800 (in 8 years)

$\frac{Maturity}{(1 + rate)^{time} } = PV$

Maturity $4,800.0000

time 8.00

rate 0.06000

$\frac{4800}{(1 + 0.06)^{8} } = PV$

PV 3,011.5794

maintenance $2,900

culverts 2 x $ 230 = $ 460

ditch 1.45 x 5,280 x 2 = $ 15,312

Total yearly cost: 18.672‬

PV of this annuity over 16 years:

$C \times \frac{1-(1+r)^{-time} }{rate} = PV\\$

C 18,672.00

time 16

rate 0.06

$18672 \times \frac{1-(1+0.06)^{-16} }{0.06} = PV\\$

PV $188,697.2765

PV of the replacement bituminous concrete

$\frac{Maturity}{(1 + rate)^{time} } = PV$

Maturity $211,200.0000

time 16.00

rate 0.06000

$\frac{211200}{(1 + 0.06)^{16} } = PV$

PV 83,138.0951

Present worth:

Total value to construct: $ 227.638,4‬ +

yearly cost PB $ 188,697.28 +

concrete replacement $ 83,138.0951

culvert replacement: $ 3,011.58

Total Present worth 502.485,35‬

Annual worth:

$PV \div \frac{1-(1+r)^{-time} }{rate} = C\\$

$502485.35 \div \frac{1-(1+0.06)^{-16} }{0.06} = C\\$

C $ 49,722.003

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Selected sales and operating data for three divisions of different structural engineering firms are given as follows: Division A

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Answer:

1. See the calculations under part 1 below.

2. We have:

Division A's Residual Income (loss) = $395,200

Division B's Residual Income (loss) = (105,600)

Division C's Residual Income (loss) = $0

3.a. Only Division B will accept the investment opportunity.

3.b. Divisions A and B will accept the investment opportunity.

Explanation:

Given:

Division A Division B Division C

Sales $15,200,000 $35,200,000 $25,200,000

Average operating assets $3,040,000 $7,040,000 $5,040,000

Net operating income $668,800 $563,200 $655,200

Min. req'd rate of return 9.00% 9.50% 13.00%

Therefore, we have:

1. Compute the margin, turnover, and return on investment (ROI) for each division.

The formulae for calculating these are:

Margin = Net Operating Income / Sales

Turnover = Sales / Average Operating Assets

Return on Investment = Margin * Turnover

Therefore, we have:

Division A:

Margin = $668,800 / $15,200,000 = 0.0440, or 4.40%

Turnover = $15,200,000 / $3,040,000 = 5 times

Return on Investment = 4.40% * 5 = 22%

Division B:

Margin = $563,200 / $35,200,000 = 0.0160, or 1.60%

Turnover = $35,200,000 / $7,040,000 = 5 times

Return on Investment = 1.60% * 5 = 8%

Division C:

Margin = $655,200 / $25,200,000 = 0.0260, or 2.60%

Turnover = $25,200,000 / $5,040,000 = 5 times

Return on Investment = 2.60% * 5 = 13%

2. Compute the residual income (loss) for each division.

The formula for calculating this is:

Residual Income (loss) = Net Operating Income - Minimum Required Return * Average Operating Assets

Therefore, we have:

Division A's Residual Income (loss) = $668,800 - (9.00% * $3,040,000) = $395,200

Division B's Residual Income (loss) = $563,200 - (9.50% * $7,040,000) = (105,600.00)

Division C's Residual Income (loss) = $655,200 - (13.00% * $5,040,000) = $0

3-a. If performance is being measured by ROI, which division or divisions will probably accept the opportunity?

The decision criterion is for a division to accept the investment opportunity if its Return on Investment (ROI) is lower than 10%. Otherwise, reject.

Based on the Return on Investment results in part 1 above, only Division B will accept the investment opportunity.

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