CH 5 #7 The New York State Utility Company is considering the construction of a new utility plant. It has accumulated the following cost information: ItemFossil plant (oil and gas)Nuclear plantInitial outlay$60,000,000$100,000,000Annual operating cost15,000,00020,000,000aNotea This is the projected cost for year 1. It is expected that the operating costs of the nuclear plant will decrease by $2,000,000 per year and level off at $10,000,000. The expected decrease is a result of decreased fuel costs. Both plants have an expected useful life of 50 years.Assume the hurdle rate for this project is 0.05 per year.Which plant should be built?Assume that if the nuclear plant is not built the needed electricity can be purchased at a cost of $16 million per year. Should it be built? A Week 3 Assignment1 VitalSource Bookshelf: The Cap xO Mail - outlook 8E6AAB8B8EB6 xG It has been said that few stockl xb My Questions | bartleby+XA online.vitalsource.com/#/books/9781135656232/cfi/6/26!/4/186/24/10/2/2@0:97.9a < 5. Annual Equivalent ...Using a hurdle rate of 0.10, which equipment is the more desirable?6. The A Corporation's computer currently has excess capacity. The controller would like to prepare and distribute a report that would takeapproximately one hour a day of the computer's time. The computer could do this task and still have excess capacity. The annual cost of thistype of computer is $1 million. The hurdle rate for this project is 0.05. The long-range planning group estimates that without the report thecorporation would be shifting to a more powerful computer five years from now. With the report, it estimates the shift to be four years from now.The new computer will cost $1.5 million per year. Assume that the computer payments take place at the end of each year.What is your estimate of the cost of adding the report?7. The New York State Utility Company is considering the construction of a new utility plant. It has accumulated the following cost information:Go to 5. Annual Equivalent Costsand Replacement DecisionsA perpetuityItemFossil plant (oil and gas)Nuclear plantComponents of unequal livesInitial outlay$60,000,000$100,000,000Annual operating cost15.000.00020,000,000-Cost of excess capacityNoteThe equal cost assumptiona This is the projected cost for year 1. It is expected that the operating costs of the nuclear plant will decrease by $2,000,000 per year and level off at $10,000,000. Theexpected decrease is a result of decreased fuel costs. Both plants have an expected useful life of 50 years.The replacement decisionAssume the hurdle rate for this project is 0.05 per year.a. Which plant should be built?b. Assume that if the nuclear plant is not built the needed electricity can be purchased at a cost of $16 million per year. Should it bebuilt?Replacement chainsConclusions8. Assume that the cost of the needed electricity in problem 7 is $17 million.a. Should the nuclear plant be built?b. Compute the present value today of building (that is, completing) the nuclear plant six years from now, when the operation costswould be $10 million per year, compared to buying electricity.Review problemProblems9. The A Corporation is considering the construction of a new plant to build a component part that it is currently purchasing. It has the followinginformationSolution to review problemItemCostExpected life$20,000,000 40 yearsWe've updated our read aloud feature!Give it a try here.PlantBibliographyUtilities10,000,000 20 yearsAa 4)10:27 PMP Type here to searchHiaO G 4)10/6/2020!

(1) Fossil plant (oil and gas) should be made because it can be clearly seen that the cost of…

Answered: a This is the projected cost for year…

10th Edition

ISBN:9781259964947

Author:Libby

Publisher:Libby

Chapter1: Financial Statements And Business Decisions

Section: Chapter Questions

Problem 1Q