# ch17 - CHAPTER 17 SOLUTIONS 17.1 Total depreciable capital...

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17 - 1 CHAPTER 17 SOLUTIONS 17.1 Total depreciable capital (excluding allocated power), C TDC Excl. = \$ 10,000,000 alloc. Allocated power, C alloc = \$ 2,000,000 Working capital, C WC = \$ 500,000 Annual sales, S = \$ 8,000,000/yr Annual cost of sales excluding depreciation, C Excl. Dep. = \$ 1,500,000/yr From Table 10.1 alloc TDC 06 . 0 08 . 0 alloc Excl. C C D + = = 800,000 + 120,000 = \$920,000/yr C = C Excl. Dep. + D = 1,500,000 + 920,000 = \$2,420,000/yr Pretax earnings = S – C = 8,000,000 – 2,420,000 = \$5,580,000/yr Federal income tax = 0.37 (pretax earnings) = 0.37 (5,580,000) = \$2,064,600/yr After-tax earnings = 5,580,000 – 2,064,600 = \$3,515,400/yr WC alloc TDC TCI alloc Excl. C C C C + + = 000 , 500 , 12 \$ 000 , 500 000 , 000 , 2 000 , 000 , 10 = + + = 28 . 0 000 , 500 , 12 400 , 515 , 3 earnings tax - after ROI TCI = = = C yr 71 . 2 000 , 920 400 , 515 , 3 000 , 000 , 2 000 , 000 , 10 earnings tax - after PBP alloc TDC alloc Excl. = + + = + + = D C C

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17 - 2 17.2 TCI taxes income federal C r C S VP = = 8,000,000 – 2,420,000 – 2,064,600 – 0.2(12,500,000) = \$1,015,400/yr
17 - 3 17.3 F = \$9,000, n y = 12 yr P = \$5,000 F = P (1 + i eff ) n y 9,000 = 5,000 (1 + i eff ) 12 (1.8) 1 / 12 = 1 + i eff i eff = 0.0502

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17 - 4 17.4 y mn m r P F + = 1 10 2 2 06 . 0 1 000 , 2 × + = 612 , 3 \$ =
17 - 5 17.5 Original loan – P = \$2,000 6% simple interest per year: i = 0.06 I = iP = 0.06 × 2,000 = \$120/yr After four years: F = P + 4 I = 2,000 + 4(120) = \$2,480 New loan: P = 2,480 8% effective compound interest per year: i eff = 0.08 n y = 6 yr F = P (1 + i eff ) n y = 2,480(1 + 0.08) 6 = \$3,935

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17 - 6 17.6 Using Eq. (17.32) + + = 1 1 1 y y mn mn m r m r r P A () 190 , 13 \$ 1 1 . 0 1 1 . 0 1 1 . 0 000 , 50 5 5 = + + =
17 - 7 17.7 y mn m r P F + = 1 y n . P F 2 2 14 0 1 2 + = = () y n 2 07 . 1 2 = 07 . 1 ln 2 2 ln y n = yr 12 . 5 1.07 ln 2 ln 2 1 = = n y Shortest time - continuous compounding y rn Pe F = y n e P F 14 . 0 2 = = ln 2 = 0.14 n y n y = 4.95 yr

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17 - 8 17.8 Funds needed from age 60-80 /yr 000 , 100 \$ = A , 20 = y n yr Present value of annuity + + = = y y mn mn m r r m r A P 1 1 1 () 815 , 981 \$ 08 . 1 08 . 0 1 08 . 1 000 , 100 20 20 = = P Payments from age 30-60 F = \$981,815 Rearranging Eq. (17.28): ( )( ) 1 8 . 0 1 815 , 981 08 . 0 1 1 30 + = + = y mn m r rF A = \$8,667
17 - 9 17.9 i eff = 0.08 Standard heat exchanger Alternate heat exchanger S equip = 0 S equip = \$800 C I = \$4,000 C I = \$6,800 n y = 6 yr n y = 10 yr Standard heat exchanger () 815 , 10 \$ 815 , 6 000 , 4 1 08 . 0 1 0 000 , 4 000 , 4 1 1 6 eff = + = + + = + + = y n R I i C C K Alternate heat exchanger 975 , 11 \$ 175 , 5 800 , 6 1 08 . 0 1 800 800 , 6 800 , 6 10 = + = + + = K Hence, the standard heat exchanger is preferable.

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