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# IOE+201+Homework+5 - If the company’s MARR is 15 use the...

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Homework #5 IOE 201 - Economic Decision Making Homework #5: Answers are due Wednesday, October 21, 2009 1. A borrower takes out a 15-year loan at interest rate i per year, compounded monthly. The payments on the loan are monthly (due at the end of each month). If the amount paid in interest in the 21 st month’s payment is twice the amount paid against the principal for that month, what is the interest rate i (% per year) ? 2. A manufacturer of specialty chocolates plans to install a new machining system for an automatic packaging process, requiring an investment \$40,000. The system will save \$20,000 per year in operating expenses, but will incur additional maintenance costs of \$5,000 per year. The system is expected to have a 4-year service life and a salvage value of \$10,000.
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Unformatted text preview: If the company’s MARR is 15%, use the Present Worth Analysis method to assess whether to go ahead with the plan. 3. A construction firm needs a particular type of equipment for a period of 3 years. The firm can either purchase the equipment for \$25,000, or rent it for \$10,000 per year. The equipment has no salvage value for the firm at the end of its use. If the firm’s MARR is 12% per year, determine which alternative should be accepted, using the annual equivalence method. 4. Textbook, p. 280, Problem 7.15(a) Consider the following project’s cash flow: Year n Net Cash Flow-\$2,000 1 \$800 2 \$900 3 X Assume the project’s Internal Rate of Return ( IRR ) is 10% [per year]. Find the value of X ....
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