The production manager on the Ofon Phase 2 offshore platform operator by Total S.A. must purchase specialized
Question:
The production manager on the Ofon Phase 2 offshore platform operator by Total S.A. must purchase specialized environmental equipment or an equivalent service. The first cost is $250,000 with an AOC of $75,000. The manager has let it be known that he does not care about the salvage value because he thinks it will make no difference in the decision-making process. His supervisor estimates the salvage might be as high as $100,000 or as low as $10,000 in 3 years at which time the equipment will be unnecessary. Alternatively, a subcontractor can provide the service for $165,000 per year. Total’s offshore project MARR is 15% per year. Determine if the decision to buy the equipment is sensitive to the salvage value. If the decision is sensitive, what should Total S.A. do before making the decision?
Salvage ValueSalvage value is the estimated book value of an asset after depreciation is complete, based on what a company expects to receive in exchange for the asset at the end of its useful life. As such, an asset’s estimated salvage value is an important... MARR
Minimum Acceptable Rate of Return (MARR), or hurdle rate is the minimum rate of return on a project a manager or company is willing to accept before starting a project, given its risk and the opportunity cost of forgoing other...
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AW contract 165000 AW high 250000AP153 75000 100000AF153 250000043798 75000 ...View the full answer
