Estimation Assignment | Homework For You
Question 2Value Lodges owns an economy motel chain and is considering building a new 200-unit motel. The cost to build the motel is estimated at $8,000,000; Value Lodges estimates furnishings for the motel will cost an additional $700,000 and will be replaced every 5 years. Annual operating and maintenance costs for the motel are estimated to be $800,000. The average rental rate for a unit is anticipated to be $40/day. Value Lodges expects the motel to have a life of 15 years and a salvage value of $900,000 at the end of 15 years.
The estimated salvage value assumes that the furnishings are not new. Furnishings have no salvage value at the end of each 5-year replacement interval. Assuming average daily occupancy percentages of 50%, 60%, 70% and 80% for years 1 through 4 respectively, and 90% for the fifth through fifteenth years, a MARR of 12% per year, 365 opening days per year, and ignoring the cost of land, should the motel be built? Base your decision on the IRR analysis.(a) Determine the investment’s worth(b) State whether or not your results indicate the investment should be undertaken(c) State the decision rule you used to arrive at this conclusion.
Question 4Remington Inc. purchases a machine that costs $700,000 and has an estimated useful life of 10 years, a MACRS property class 7 and an estimated salvage value of $75,000 after 10 years. It was financed using a $200,000 down payment and a loan of $500,000 over a period of 5 years with interest at 5%. Loan payments are made in equal amounts (principas plus interest) over the 5 years.
(a) What is the amount of MACRS-Class 7 depreciation taken in the third year?
(b) What is the book value at the end of the third year?
(c) Returning to the original situation, what is the amount of the MACRS-Class 7 depreciation taken in the third year if the machine is also sold during the third year?(HINT: You should ask yourselves whether the loan information is relevant or not)Question 5To make a batch of 1,000 units, it is estimated that 120 direct labor hours are required at a cost of $10 per hour. Direct material costs are estimated at $1,500 per batch. The overhead costs are calculated based on an overhead rate of $7.50 per direct labor hour.
The item can be readily purchased from a local vendor for $4 per unit.(a) Should the batch be manufactured or purchased?(b) What is the break-even value for the overhead rate (dollars per direct labor hour)? Assume that the material costs, labor hours and labor cost do not change. Get Economics homework help today
