Assignment 7 Solutions

Assignment 7 Solutions - Chapter 11 Solutions 11.2...

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Unformatted text preview: Chapter 11 Solutions 11.2 Application Problems 3. Figure 11.3 shows the spreadsheet analysis for the LNG terminal investment. = pplication Problem 11.3 Input Year Cas Fow Prod I Investment $1,000.00 1000 million cubic meters per clay 2500.00 Prod 1 ($500.00) REVEI'IUE 300 $2.10 days per year per 1000 cubic meters 2 $430.00 $430.00 4 $430.00 Fixed Cost $200-00 million 30% $430.00 $430.00 36% $430.00 $430.00 $210.41 $53.45 9 $430.00 10 $430.00 11 $430.00 Ill U1 12 $430.00 13 $430.00 14 $430.00 15 $430.00 15 $430 00 17 $430.00 13 $430.00 $430.00 20 2430.00 - El E E3 E El E3 IE] [I] IE [2‘] IE] IE] El E El El l-‘ LD Figure 11.3: Analysis of LNG terminal investment. Chapter 12 Solutions 12.1 Drill Problems 5. The possible portfolios and returns are given in the spreadsheet in Figure 12.3 2? rill Problem 12-5 —— 1 $1111] 55?? $31? G $41? $1.31 51,53 .3]. .m- E 2 “Mm ‘- m Ml $?2EI $ 1,38 5 1:59 $ 2,168 - - LEI Isl EEI IELI E III III IEI IEIEI HI IE] El lfll III In III Isl I . I—I—I— I—I—I— mun-h PHI-ID --u I— |-" a E K ...... ' h h-w -Luru Figure 12.3: All possible portfolios and returns. 10. The following minimize cost. (a) Six year horizon: A/P,9%,5 A/F,Q%,6 AEC(9%)A = $500, 000( 0.2229) +$300,000 — $125,000(0.1329) = $394,838 A/P,9%,6 AJA1,15%,Q%,E AEC(9%)B = $350, 000( o. 2229) + $400, 000( 1.4039 ) = $641, 560 Since AEC’A < AEC‘B, Asset A should be installed. (b) Eight year horizon: A]P,Q%,8 A/F,Q%,8 AEO(9%)A = $500, 000( 0. 1807) + $300, 000 — $50, 000( 0. 090'?) = $385, 815 PfA1,l5%,Q%,fi A;P,Q%,8 AEC(9%)B = ($350,000+ $400,000( 0.3200 )) (0.1sc-7)+ B F/A1,30%,9%,2 A]F,9%,8 $400,000(1+ 0.15) (1 + 0.30)( 2.3900 )(0.090?) = $780, 7'87 Asset A should again be installed. (0) 24 year horizon: Compare the AEC of A and B over 8 and 6 years respectively and assume repeatability. This leads to a choice of A over B. (d) The answer is equivalent to [c]. 12.2 Application Problems 143 -ppllcatlon Problem 12. 5b: ' p (In men 335- e “5 ’8 $25. an $11. 95 $18. 84 $35.12 $22.24 $25. 82 $51. 98 $22. 88 Y Y Y Y n MN MF- Eh“ $12. 58 $15. an $42. 88 Ewan-unma- =I~<-< 13 $38. 58 23 $43. 58 :I:I:I:I:I.<:I [HI [SH [51'] En l'fll LEE] LEI LEE LEI Hi] W I'fl'J LEI IE] Hi“ Ell Figure 12.7: Feasible investment portfolios and returns. 4. (a) The diesel truck is cheaper: A/P,3.5%,8 A /G,3.5%,8 A /F,3.5%,8 AEC(3.5%)D = $210K( 0.1455 )+$15K+$1K[ 3.3195 )—$10K( 0.1105 )= $47.8K A]P,.,835% A /,.,8GES% A/F,,83.5% AEC(3. 5%)0— — $260K( 0.1455 )+$15K+$3K( 3 3195 )— $30K[ 0 1105 )= $59. 5K (b) The CNG trucks should be chosen: $15K — 0 BC _ $50.5K — $47.8K _ 1'28 We should make the investment. (c) The grant lowers the cost of the trucks, and thus, the cost in the denominator of the BC analysis. For the AEC: A/P,3.5%, A/G,3.,5%8 A]F,.,835% AEC‘(3. 5%)0— — ($260K— $500K/13)( 0 1455 )+$15K+$3K( 3 3195 )— $30K( 0.1105 )= $53. 9K The AEC are still higher for the CNG trucks, but the gap has been closed by about 50%. 5. (a) Options 5 and 6 should be evaluated separately as service projects. (b) As given in the spreadsheet in Figure 12.7, there are eight feasible investment options. (c) From Figure 12.7, portfolio 8 (projects 1 and 4) has the best return of $51.90. (d) With the budget, the only options allowed now are 0, 1, 2, or 3. (e) The order is: 0, 3, 1, 2. The IRRs for projects 1, 2, and 3, respectively, are 40%, 27%, and 35%. Project 3 is preferred to the Clo—nothing option. Iteration 2: Portfolio 1 — 3 is defined by the flows: (—3.5, 0, 3, 6, 4, 2, 0, 0, 0) with an [HR of 59%. Thus, project 3 is rejected and 1 is accepted. Iteration 3: Portfolio: 2 —1 is defined by the flows: (—5, 1, —3, —7, —6, —5, 11, 12, 13) which may have multiple roots. Thus, we turn to present worth. The PW(16%) of this flow is negative. Thus, 2 is rejected and 1 is accepted. ...
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