[Study Helper] What should Mr. Handy do if the replacement’s annual costs are the same or lower?

case study with 3 questions – no plagiarism

**attched is sample answer with actual case study

1. Calculate the NPV of the proposed overhaul of the Vital Spark, with and without the new

engine and control system. To do the calculation, you will have to prepare a spreadsheet table

showing all costs after taxes over the vessel’s remaining economic life. Take special care

with your assumptions about depreciation tax shields and inflation.

2. Calculate and compare the equivalent annual costs of (a) overhauling and operating the Vital

Spark for 12 more years, and (b) buying and operating the proposed replacement vessel for

20 years. What should Mr. Handy do if the replacement’s annual costs are the same or lower?

3. Suppose the replacement’s equivalent annual costs are higher than the Vital Spark’s. What

additional information should Mr. Handy seek in this case?

case study with 3 questions – no plagiarism

**attched is sample answer with actual case study

1. Calculate the NPV of the proposed overhaul of the Vital Spark, with and without the new

engine and control system. To do the calculation, you will have to prepare a spreadsheet table

showing all costs after taxes over the vessel’s remaining economic life. Take special care

with your assumptions about depreciation tax shields and inflation.

2. Calculate and compare the equivalent annual costs of (a) overhauling and operating the Vital

Spark for 12 more years, and (b) buying and operating the proposed replacement vessel for

20 years. What should Mr. Handy do if the replacement’s annual costs are the same or lower?

3. Suppose the replacement’s equivalent annual costs are higher than the Vital Spark’s. What

additional information should Mr. Handy seek in this case?