1000 Lecture Notes - Cash Flow, Mansfield, Capital Cost

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22 Apr 2014

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Note 1: unless otherwise stated, all cash flows given in the problems represent after- tax cash flows in actual dollars. The marr also represents a market interest rate, which considers any inflationary effects in the cash flows. Note 2: unless otherwise stated, all interest rates presented in this set of problems assume annual compounding. 6. 1 consider the following cash flows and compute the equivalent annual worth at i = 12%: Ae (12%) = [-,000 + ,000(p/f, 12%, 1) + . 6. 2 (a) the following investment has a net present value of zero at i = 8%: Which of the following is the net equivalent annual worth at 8% interest? (a) (b) sh (c) (d) . 0 = -2145 + 400 * (p/f, 8, 1) + 400 * (p/f, 8, 4) + x * (p/a, 8, 2) (p/f, 8, 1) + x * (p/a, 8, 2) (p/f, 8, 4)

Related Questions

1. What is the capitalized value of an infinite series of $1,000 biennial (every two years) payments? MARR = 10%

		$4,950
		$4,025
	.	$4,350
		$4,762

2. Frank West Enterpises would like to choose one of the following plans for expansion. Using present worth analysis, find the best alternative among the three alternatives and the Do-Nothing.

	Alt. A	Alt. B	Alt. C
Initial Cost	$10,000	$21,000	$8,000
EUAB	$6,000	$7,000	$4,000
EUAC	$1,500	$1,000	$2,000
Salvage Value	$2,000	$8,000	$3,000
Life	2 Years	3 Years	2 Years

Use a MARR of 10%.

	.	Do-Nothing
	.	Alt. C
	.	Alt. B
	.	Alt. A

U. S. Engineering is investigating the possibility of acquiring new automated packaging equipment at a cost of $12,000. It is expected that the equipment will have a salvage value of $1,000 at the end of its useful life of 10 years. It is determined by the plant engineering department at the company that the operation and maintenance cost will be $500 in the first year and will gradually increase every year starting year 2 at the rate of $50 until the equipment is retired. Determine the equivalent uniform annual cost (EUAC) if MARR for the company is 10%.

		$2,575.95
		$2,150.50
	.	$2,176.60
	.	$2,184.40

The cash flows given in table below are for two different alternatives. MARR =10%

Data	C	D
Initial Cost	$20,000	$80,000
Uniform Annual Benefits	$6,000	$10,000
Salvage Value	$5,000	$20,000
Useful Life in years	5	infinity

The equivalent uniform annual worth (EUAW) of alternative N is ______________.

Hint: Assume the Salvage Value is never realized since N is infinite.

		$2,000
		$1,920
		$1,762
		$2,476

Compare the following plans using a MARR of 6%.

Data	Plan X	Plan Y
Equipment First Cost	$50,000	$75,000
Annual Operation & Maintenance Cost	$3,000	$2,500
Salvage Value	$10,000	$0
Service Life, Years)	25	50

		$6,728; $7,255
		$7,255; $9,000
	.	$6,728; $7,728
	.	$6,728; $8,200

LAEP, Inc. wants to evaluate two methods of shipping their products. The following cash flows are associated with each alternative:

Data	Method
	A	B
Life (Years)	10	10
First Cost	$700,000	$1,512,000
M&O Cost	$18,000	$9,000
M&O Cost Gradient	$900	$775
Annual Benefit	$154,000	$303,000
Salvage Value	$142,000	$210,000

Annual profits are based on amount of products which can ordinarily be shipped each year as a function of the amount of vehicles or service purchased with the first cost and the M&O costs.

Using a MARR of 15%, calculate the equivalent uniform annual cash flow (EUAB - EUAC) for each alternative.

Determine the most desirable alternative based on the results.

		$389.57, $445.90; Method A
		$445.90, $389.57; Method A
	.	$445.90, $389.57; Method B
	.	$389.57, $445.90; Method B

For the cash flow diagram shown, which of the following equations properly calculates the uniform equivalent (A)?

n	0	3	6	9	12	15
Dollars	$100	$100	$100	$100	$100	$100

		A=100(A/P,i,15)+ 100(A/F,i,3)
		A=100(A/P,i,15)
		A=100(A/F,i,3) + 100(A/F,i,15)
		A=100(A/P,i,3) + 100(A/F,i,3)

Three different alternatives shown in table below are being considered by U. S. Engineering systems.

Assume that alternatives X and Z are replaced at the end of their lives.

Data	Alternative X	Alternative Y	Alternative Z
Initial Cost	$6,000	$1,000	$1,500
Uniform Annual Benefits	$810	$125	$ 230
Useful Life in Years	20	infinite	10
MARR	12%

The NPW for alternative

Short Answer/ProblemsâAnswer all numbered questions @ 10 points each. Provide your answers in the space provided or the back of the page. Make sure to scan all work pages. Any quantitative questions require showing your work for full credit. Round all $ problems to the nearest cent. All other calculations must be to at least the fifth decimal place. 1. Answer BOTH parts a & b below. a) Explain the impacts of low level unanticipated inflation for a country like the United States. b) In the United States, our confidence in our fiat money is derived from (3 things) 2. Given the following 4 scenarios: â¢ The contract interest rate was 6.5% and the expected inflation rate was 2.5%. â¢ The contract interest rate was 12% and the expected inflation rate was 10%. â¢ The contract interest rate was 7.5% and the expected inflation rate was 4%. â¢ The contract interest rate was 4% and the expected inflation rate was 1%. a) Indicate which scenario would have been best for the lender and explain why it is best for the lender. b) With an ex post actual inflation rate of 2.25%, indicate which scenario would have been best for society and explain why it is best for society of the four options. 3. Define, compare, and contrast two of the following sets of terms as they. a. organized exchange markets vs. OTC (over the counter) markets b. fiat money vs. representative full-bodied money c. adverse selection vs. moral hazard 4. Indicate what would happen to both M1 and M2 (increase, decrease, no change) due to each of the following events. Consider each lettered event to be independent of the others. a) you write a check for cash at the casino b) an individual redeems a personal CD and deposits the funds into a savings deposit account c) U.S. commercial banks use some of their excess reserves to purchase $250 billion worth of U.S. Treasury securities from the Federal Reserve. d) as the economy improves, banks ease their credit standards and approve a higher percentage of loan applications. e) you spend $4,000 in U.S. currency while on your spring break trip to Acapulco (if you spent less than that you could not have had much fun) Part III: Longer ProblemsâAnswer all numbered questions @ 15 points each. Provide your answers in the space provided or the back of the page. Make sure to scan all work pages. Any quantitative questions require showing your work for full credit. Round all $ problems to the nearest cent. All other calculations must be to at least the fifth decimal place. 5. The following is a historical list of median home prices in two states. Year State 1 ($) State 2 ($) GDP deflator (2009 base year) 1950 9,564 5,396 14.09 1960 15,100 9,800 17.56 1970 23,100 13,000 23.18 1980 84,500 43,900 46.05 1990 195,500 50,800 67.62 2000 211,500 74,400 82.59 2017 (estimate) 400,000 201,991 113.61 a. Convert each price into current year dollars. b. Determine how much a person would have had to pay in 1950 (for both states) to equal the 2017 real home value. c. For both states, determine the percentage increase in home values from 1950-2017 (one calculation for each). 6. Using the following information for a U.S. state: Nominal GDP Real GDP Population Year (millions) (millions 2009 $âs) 1,151,119 1,421,713 32,987,911 1998 1,879,520 1,975,457 36,020,878 2006 2,350,807 2,143,167 38,792,459 2014 a. What is the average annual growth rate for this state during the time periods listed? (Note: time periods of interest are 1998-2006 & 2006-2014) b. What is the average annual inflation rate for this state during the time periods listed? c. To what extent are living standards likely changing in this economy? Explain and support your claim using evidence from the above table. d. For 1 bonus point, indicate the U.S. state associated

1000 Lecture Notes - Cash Flow, Mansfield, Capital Cost

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