Engineering Economics

Engineering Economics ? All of the group members names and their Banner numbers Other Requirements: ? Include a completed group declaration form ? Use clear writing, and a clear organized layout ? Draw cash flow diagrams where appropriate ? Cite sources for information acquired elsewhere ? All assignments must be bound or stapled in upper left - hand corner ? Make reasonable assumptions as required. ? Clearly state all assumptions. ? Use excels spread sheets to solve the problem. Case Study: Submission # 2 Continuing Case Study 1, assume that you are supposed to execute project 1 which is implementing a new product to upgrade the current service. Your careful examination reveals following information: The project lifetime can be extended to 10 years by reinvestment on new equipment at the end of year 5 with the amount of $10 million. The initial investment remains the same ($25 million) , but we decided to use a $10 million loan to cover part of initial investment at the rate of 15% annual interest to be paid back in 10 years. The total annual benefit per each new customer is $80 in year 1 and will be decreased by 3 % every year. Also the average annual benefit from upgrading customer is $20 for year 1 with 4% decrease every following year . Initial investm ent ($25M ) includes purchasing some equipment ($15M), the lands for $4M and the buildings for $ 6M . T he estimated salvage value of equipment p urchased at the beginning of project is $3M at the end of year 10. Also, the estimated salvage value of equipment purch ased at the end of year 5 is $4M at the end of the project and value of the buildings will be $3M. The value of land will increase by 15 % at the end of 10 years . Detail of updated project information over 10 years is provided in table below. Year 0 1 2 3 4 5 6 7 8 9 10 Investment 25,000,000 0 0 0 0 0 10,000,000 0 Marketing and operations cost 2,000,000 1,000,000 1,000,000 500,000 500,000 800,000 Decrease by 10% every year from previous year Forecasted new customer acquisition 40,000 35,000 30,000 25,000 20,000 30,000 Decrease by 5% every year from previous year Forecasted upgrading customers 100,000 80,000 60,000 40000 20,000 50,000 Decrease by 5% every year from previous year Consider that minimum a cceptable rate of return for the first five years is 1 8% and for next five years is 20 %. Assume that all equipment are eligible for CCA=30% and the building is eligible for CCA=4%. 50% rule applies for the equipment only . Include disposal tax effect with rate of 40% in your calculatio ns . Q1 : Prepare an income statement including revenues, the operating and marketing costs, depreciation (Building and the equipment), disposal tax, loan interest payments and any other cost or revenue applicable for the project life ( 10 years). Using CRA (Canada Revenue Agency) website the current tax rate for the province/territory in which your business is located, as well as the current federal tax rate. Do not forget to include references. Q2 : Prepare the cash flow statement for the life of the projec t. Is this project an economic project? Answer to this question by finding NPW of the project. Also, compute the internal rate of return. Q3 : Pick two other provinces/territories with different tax rates (one higher and one lower than yours) and conclude whether the after - tax effect would be better or worse, comparing NPW of the project in these provinces/territories. If a higher or lower tax rate than your province does not exist between Canadian provinces and territories, assume +/ - 5% differential.                                      PLACE THIS ORDER OR A SIMILAR ORDER WITH US TODAY AND GET AN AMAZING DISCOUNT :)