Cost Estimate
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SystemsLifeCycleCostEstimation.docxSystems Life Cycle Cost Estimation
To get full credit you need to define all variables and show all calculations and graphs.
#1. Two machines are considered for purchase. The relevant data is presented in Table 1.
|
|
MODEL A |
MODEL B |
|
Investment |
$60,000 |
$60,000 |
|
Revenue |
|
|
|
YR 1 |
$20,000 |
$30,000 |
|
YR 2 |
$20,000 |
$30,000 |
|
YR 3 |
$20,000 |
$30,000 |
|
YR 4 |
$20,000 |
- |
|
YR 5 |
$20,000 |
- |
|
Total Earning |
$100,000 |
$90,000 |
Table #1. Investment and Revenues for machines A and B
a. Evaluate the data presented and decide which is a better purchase in terms of payback period, net present value (use 10 percent) and internal rate of return.
#2. Banks A and B advertise different interest rates. Bank A pays a nominal rate of 5% per year compounded monthly, and Bank B pays depositors 4 ¾% per year compounded daily. Which bank has a better rate and why?
#3. A project engineer has produced the estimates (in millions of dollars) presented in Table 2. Find the expected cost of the project.
Table 2 Three estimates for a project
|
Item |
Optimistic Cost |
Most Likely Cost |
Pessimistic Cost |
|
Direct Labor |
79 |
95 |
95 |
|
Direct Material |
60 |
66 |
67 |
|
Indirect Expenses |
93 |
93 |
96 |
|
Fixed Expenses |
69 |
76 |
82 |
