Economics
Assignment:
Complete the following numbered problems using an Excel spreadsheet. You must show your work to get full credit. Each student is responsible for completing their own response to the problems.
1. Consider the cash flows for the following two projects:
|
n
|
A
|
B
|
|
0
|
($10,000)
|
$7,000
|
|
1
|
$2,000
|
($1,500)
|
|
2
|
$X
|
($2,500)
|
|
3
|
$2,000
|
($2,000)
|
|
4
|
$4,000
|
($2,000)
|
(a) For project A, find the value of X that makes the equivalent annual receipts equal the equivalent annual disbursement at i=10%
(b) Would you accept project B at i=11% based on AE criterion?
2. Joey is considering buying a 2016 Audi RS7 costing $108,900 and finds that the retaining values of the vehicle over the next six years are as follows:
Percent of the total value retained after 36 months: 60%
Percent of the total value retained after 72 months: 30%
If his interest rate is 3% compounded annually, what is the ownership cost of the vehicle over 3 years? 6 years?
3. Consider the following investments:
|
Period
|
Project Cash Flows
|
|
n
|
A
|
B
|
C
|
D
|
|
0
|
($6,000)
|
($8,000)
|
($10,000)
|
($13,000)
|
|
1
|
$1,000
|
$5,000
|
$2,500
|
$0
|
|
2
|
$2,000
|
$2,000
|
$2,500
|
$0
|
|
3
|
$3,000
|
$1,000
|
$2,500
|
$7,000
|
|
4
|
$4,000
|
$1,000
|
$2,500
|
$14,000
|
Compute the equivalent annual worth of each project at i=10%, and determine the acceptability of each project.
4. An advertising firm needs to borrow $300,000 from a local bank at an interest rate of 8% over nine years. What is the required equal payment to retire the loan in nine years?
5. Y.I.H.D. Manufacturing just purchased a new machine to speed up production on their assembly line. This machine costs $200,000. Because of the specialized function it performs, its useful life is expected to be five years. At the end of its useful life, its salvage value is estimated to be $30,000. What is the capital cost for this investment if the firm's interest rate is 10%?