1. A new 2-lane road is needed in a part of town that is growing. At some point the road will need 4 lanes to handle the anticipated traffic.
If the city's optimistic estimate of growth is used, the expansion will be needed in 4 years. For the most likely and pessimistic estimates, the expansion will be needed in 8 and 15 years, respectively. The expansion will cost $5.4 million. Use an interest rate of 6%.
(a) What is the PW for each scenario, and what is the range of values?
(b) Use Equation 10-1 to find the mean value of the expansion's PW.
2. The purchase of a used pickup for $14,000 is being considered. Records for other vehicles show that costs for oil, tires, and repairs about equal the cost for fuel.
Fuel costs are $1500 per year if the truck is driven 10,000 miles. The salvage value after 5 years of use drops about 100 per mile. Find the equivalent uniform annual cost if the interest rate is 6%. How much does this change if the annual mileage is 15,000? 5000?
3. For the data in Problem 10-2 assume that the 5000, 10,000, and 15,000 mileage values are, respectively, pessimistic, most likely, and optimistic estimates. Use a weighted estimate to calculate the equivalent annual cost.
4. The company treasurer must determine the best depreciation method for office furniture that costs $50,000 and has a zero salvage value at the end of a 10-year depreciable life.
Compute the depreciation schedule using:
(a) Straight line
(b) Double declining balance
(c) Sum-of-years'-digits
(d) Modified accelerated cost recovery system
5. The Acme Chemical Processing Company paid $50,000 for research equipment, which it believes will have zero salvage value at the end of its 5-year life. Compute the depreciation schedule using:
(a) Straight line
(b) Sum-of-years'-digits