Question 1 Answer all QUESTIONS in EXCEL PLEASE
Which of the four projects listed blow would you choose if you only want to invest
in one project if the criteria is a) Present Worth, b) Future Worth or c) Annual Worth?
All projects are for five years and the risk-free interest rate is 10%.
Project
X1 Invest $14,000 today and receive $25,000 in five years.
X2 Invest $10,000 today, receive annual payments of $3,000.
X3 Invest $15,000 today, receive annual payments of $4,000, and also receive a final
payment of $2,000.
X4 Invest $9,000 today, receive annual payments of $1,000, $2,000, $3,000, $4,000
and $5,000

Question 4
The following projects are being considered by the Corporate Investment Committee who has an
investment budget of $1,000,000.

a. Which ones should be funded based on NPR assuming a 6% interest rate? Your budget is
Only $1,000,000.
b. Which ones should be funded using a 3 year or less payback period criterion?

Project Years Up Front (Y 0) Cost each year after first Benefits each year after first
V 6 $500,000 0 $110,000
W 6 $250,000 $40,000 $100,000
X 5 $400,000 $100,000 $200,000
Y 3 $300,000 $25,000 $150,000
Z 4 $150,000 $200,000 $250,000

Question 5
A portable generator is needed at a remote construction site. Two alternatives are being
considered. Their annual fixed costs and operating and maintenance costs per hour
are shown in the table below. The generator runs three 8 hours shifts/day for 250
working days per year.

Generator Fixed costs($/yr) O&M Costs($/hour)
1 $4000 $7.00
2 $8000 $5.50

a) How many hours per shift is a generator needed if the contractor is
indifferent between the two generators?
b) If the site requires a generator for 2.5 hours/ shift, which generator
is preferred, and what is its estimated annual cost?
c) If the site requires a generator for 5.5 hours/ shift, which generator is
preferred, and what is its estimated annual cost?

Question 6
The Signal Company is planning on investing in a new project. This will involve the purchase
of some new machinery costing $450,000. The Signal Company expects cash inflows from this
project as detailed below.

Year Year Year Year
One Two Three Four
$200,000 $225,000 $275,000 $200,000

The appropriate discount rate for this project is 16%. Show calculations.

a) What is the payback period for this project?
b) What is the NPV for this project?
c) What is the profitability index for this project?

Question 7
A bond is purchased for $9,855.57. It is kept for 5 years and interest is received at the end of each year. Immediately following the owner’s receipt of the fifth interest payment, the owner sells the bond for $500 less than its par value. The bond rate of interest is 8% and the owner’s money yields a 10% interest rate.
a. Draw a clear completely labeled cash flow diagram of the entire bond transaction using dollar accounts where they are known and $X to represent the bond’s face value.
b. Determine the bond’s Face Value.

Question 8
Strong Tool Company has been considering purchasing a new lathe as a replacement for a fully depreciated lathe that can last 5 more years. The new lathe is expected to have a 5-year life and depreciation charges of $2,000 in year 1; $3,200 in year 2; $1,900 in year 3; $1,200 in both year 4 and year 5; and $500 in year 6.
The firm estimates the revenues and expenses (excluding depreciation and interest) for the new and the old lathes to be as shown in the following table.
The firm is subject to a 40% tax rate. Should the new lathe be purchased? The price of the new lathe is $ 10,000 and the cost of capital is 10%, annually.
Year New lathe Old lathe
Revenue Expenses (excl. depr. and int.) Revenue Expenses (excl. depr. and int.)
1 $40,000 $30,000 $35,000 $25,000
2 $41,000 $30,000 $35,000 $25,000
3 $42,000 $30,000 $35,000 $25,000
4 $43,000 $30,000 $35,000 $25,000
5 $44,000 $30,000 $35,000 $25,000

Question 9
Fabco Inc. is considering purchasing flow valves that will reduce annual operating cost by $10,000 per year for the next 12 years. Fabco’s MARR is 12%/year. Using Using a PW approach determine the maximum amount Fabco should be willing to pay for the valves.

Question 10
A pipeline contractor can purchase a needed truck for $40000. Its estimated life is 6 years, and it has no salvage value. Maintenance is estimated to be $2400/year. Operating expenses is $60/day.
The constructor can hire a similar unit for $150/day. MARR is 7%
a. How many days/year must the truck’s services be needed such that the two alternatives are equally costly?
b. If the truck is needed for 180 days per year, should the contractor buy the truck or hire the similar one? Why?