Carefully read all directions given in a problem. Please show all work for all problems, and clearly label all formulas.
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1 Carefully read all directions given in a problem. Please show all work for all problems, and clearly label all formulas. 1. You have been asked to make a decision regarding two alternatives. To make your decision, use Net Present Worth Analysis. Alternative #1 (a.k.a., Dale s Dandiest) has the characteristics shown in the chart below. Alternative #2 (a.k.a., Bob s Best) has a 10-year life span. Fortunately, its NPW has already been calculated for you (based on its given life span). The NPW for Alternative #2 was found to be $5,750. Given this information, decide which, if any, is the best choice. MARR = 10%. (20) Dale s Dandiest Initial Cost $40,000 O&M Costs $5,000 per year Benefits $16,000 per year Salvage $3,000 Life (in years) 5
2 2. You have identified two potential alternatives to purchase for your organization. Before purchasing them, you must show economic justification. Your company requires the use of Annual Cash Flow Analysis. NOTE: The first alternative (which has an expected life of eight (8) years) has already been calculated for you. It was found to have EUAB EUAC = $11,750. If MARR = 7%, make the appropriate calculations for the second alternative (given below). Which, if any, is the preferred alternative? (20) Alternative #2 Initial Cost $20,000 Benefits $18,000 in years 1 and 2, $12,000 in years 3 and 4 O&M Costs $1,000 per year Salvage $5,000 Life (in years) 4
3 3. Given the following information and the fact that ROR = 10%, complete the choice table given below. Note: Do-Nothing is an option. (9) Alternative Sharp 125XS Bully s Best Initial Cost ROR 16% 18% Choice Table MARR Range Choice 4. A couple purchased a house 5 years ago using a 30 year, $100,000 mortgage at an interest rate of 9%, compounded monthly. This loan situation resulted in monthly payments of $800. At the current time, their lending institution has told them that they can refinance the remaining principle on their loan at an interest rate of 6.0% compounded monthly. Calculate the current remaining principle on the loan, based on the 5 years worth of payments (i.e., 60 months) that have already been paid. That is, what total amount is owed on the loan as of now? (6) a) Remaining Principal = $100,000 $800(P/A, 0.75%, 300) = $4, b) Remaining Principal = $100,000 $800(P/A, 0.75%, 60) = $61, c) Remaining Principal = $100,000 $800(P/A, 0.50%, 60) = $58, d) Remaining Principal = $100,000(F/P, 0.5%, 60) $800(F/A, 0.50%, 60) = $79,084 e) Remaining Principal = $100, (60) = $52,000 f) none of the above 5. Given the the Excel Spreadsheet shown below, write the code necessary to make the identified calculations. (10)
4 6. The following costs and benefits are associated with two machines under consideration for investment. Using Rate of Return Analysis with Present Worth equations, determine which (if any) of the two alternatives is preferred. MARR = 20%. Please find the exact ROR calculation in making your decision (round to the nearest 0.01%---example, 10.47%). Show any linear interpolation equation that is needed. Also, write out each step of any formula used (i.e., show all values looked up in charts). Let 20% be your first guess. (25) Machine A Machine B First Cost $52,000 $85,000 Annual Costs $15,000 $10,000 Annual Benefits $38,000 $35,000 Salvage Value $13,000 $20,000 Useful Life 3 years 6 years ROR 24.46% 22.11%
5 Note: You may work either of the following two problems. Please write OMIT on the problem that you do not want graded. 7. A rather wealthy man decides to arrange for his descendants to be well educated. He wants each child to have $60,000 for his or her education. He plans to set up a perpetual trust fund so that six children will receive the assistance in each generation. He estimates that there will be four generations per century, spaced 25 years apart. He expects the trust to be able to obtain a 5% rate of return, and the first recipients to receive the money 15 years from now. How much money should he set aside in the trust? (10)
6 7. You are trying to decide whether or not you want to purchase a corporate bond that will mature in 10 years. The face value of the bond is $15,000. The bond will pay equal semi-annual payments based on an annual rate of 3% of the face value. If you want to earn an interest rate of at least 10%, compounded semi-annually, what is the most you should pay for the bond? (10) Remember to write OMIT on the problem that you do not want graded.
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