HW3 Soln 10 corrected

# HW3 Soln 10 corrected - ENG 106 Present Worth Homework#3...

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ENG 106 Homework #3 Solution Winter 2010 Present Worth 5.13 Given: Four projects, each has a three-year life, i = 13%/yr EOY A B C D 0 -5000 -2000 4500 -3500 1 5800 -4400 -6000 \$1000 2 12400 7000 2000 \$5000 3 8200 3000 4000 \$6000 a) Find: NPWs of the projects. PW A = -5000 + 5800 (P/F, 13%, 1) + 12400 (P/F, 13%, 2) + 8200 (P/F, 13%, 3) = -1800 + 600 (.8850) + 900 (.7831) + 1700 (.6931) = \$15,527. PW B = \$1,667. PW C = \$3,529. PW D = \$5,459. (PW do nothing = 0.) b) Also, which project(s) would you select if they are: - independent? Choose all with positive NPVs: A, B, C, D. - mutually exclusive and there is also a “Do Nothing” alt (with no cash flow)? Choose the most positive: A. (If they were all negative, choose the do nothing option.) - M.E. and there is no D.N. alt?? Choose the highest NPV: A. 5.29 Given: system costs include \$650k initial (design & build); \$100k rework every 10 yrs; a one-time \$50k @EOY 5; operating costs of \$30k/yr through yr 15, then \$35k/yr thereafter; infinite life; i=8%/yr. Describe: why you think the stated cash flows are in constant \$ or actual \$. Uniform series for perpetual projects almost certainly means the estimates are in today’s (constant yr-zero) dollars. Here the rework and operating costs are the giveaways. (The jump in operating costs after year 15 is a bit of a glitch, maybe related to some component that needs annual maintenance only after that time.) We hope the interest rate is an inflation-free i’ because it is not kosher to use a market rate with constant dollars. . Find: Capitalized cost of the project. There are several correct approaches to this, all will give the same result. PWcost = \$650k + \$100k(A/F, 8%, 10)/0.08 + \$50k(P/F, 8%, 5) + \$30k(P/A, 8%, 15) + \$35k(P/F, 8%, 15)/0.08 = \$1,165k 5.37 Given: Two mutually exclusive projects with cash flows shown below, lives are 3 yrs for A and 2 yrs for B, projects are repeatable, i=12%/yr. EOY

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## This note was uploaded on 04/09/2010 for the course ENGR ENG106 taught by Professor Hartsrough during the Winter '10 term at UC Davis.

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HW3 Soln 10 corrected - ENG 106 Present Worth Homework#3...

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