FINTEST2-3 - 03 Exam Number 3(20 Points This problem...

Info icon This preview shows page 1. Sign up to view the full content.

View Full Document Right Arrow Icon
Image of page 1
This is the end of the preview. Sign up to access the rest of the document.

Unformatted text preview: 03. Exam Number 3. (20 Points) This problem considers inflation. The general inflation rate is 3%. The minimum acceptable rate of return is 11%. This includes an allowance for inflation (it is the market MARR). ”I qr? The city engineer has prepared a plan for the construction and maintenance of roads in a city park. The plan meets road requirements for the next 40 years. The plan' IS developed' in three stages; $300, 000 is to be spent immediately, followed by $250, 000 at the end of 15 years and $300, 000 at the end of 30 years. These three expenditures are the development costs. Maintenance for the plan will be $75, 000 peryear for the first 15 years and $125, 000 for each of the subsequent years. In addition, the roads will be resurfaced every 5 years for a cost of $20, 000 each time. Resurfacing is not required in the 40s. year. These are the maintenance costs. At the end of forty years, it is believed the equipment may be sold for $150, 000. This is the resale revenue. All casts and revenues noted above are estiniatgfiism' ' usingtoday’ 5 _prices. The development [\MZRR costs are expected escalate at a 9% annual rife. The maintenance costs are expected to %’< escalate at a 1% rate. The resale value of the equipment is expected to escalate at a 4%//] annual rate. For the solutions below expiessallarnounts' in dfiusands of dollars. A am MAR line 3 'l' MARRp'YEI- 8% b. Considering inflation what are the development costs estimated in actual an real dollars?( (l -t- 3 > —'l——— _al Cost #6 kw“ 3? $300, 000 is to be spent immediately 300. k \ $250, 000 at the end of 1.5 years 2 to .000 It I if ' ' a. What is the real MARR? 7. 77% $300,000 at the end of 30 years. I “941 :59, "f mo a my; D = lea-Kt”. we)“ is. Inrealdoil'arsr, whatistheresalerevenne? 221 D“: ‘EnKi-te)“ MIL» * W d. Construct a model of the situation us g diesgconomics add-in. Submit your model. e What is the NPW of the plan? Dn=CnU 3+5? 1416 The total cash expended rs total of all costs less the total of all revenues over the 40 years b%+_.f§)u‘ 7, when the cash flow' is expressed in actual dollars. (1.! What is the total cash expended? ( 308:3: ‘J L ' is ' r, 8, MA? 1‘ IE 3 + ' 3 ...
View Full Document

{[ snackBarMessage ]}

What students are saying

  • Left Quote Icon

    As a current student on this bumpy collegiate pathway, I stumbled upon Course Hero, where I can find study resources for nearly all my courses, get online help from tutors 24/7, and even share my old projects, papers, and lecture notes with other students.

    Student Picture

    Kiran Temple University Fox School of Business ‘17, Course Hero Intern

  • Left Quote Icon

    I cannot even describe how much Course Hero helped me this summer. It’s truly become something I can always rely on and help me. In the end, I was not only able to survive summer classes, but I was able to thrive thanks to Course Hero.

    Student Picture

    Dana University of Pennsylvania ‘17, Course Hero Intern

  • Left Quote Icon

    The ability to access any university’s resources through Course Hero proved invaluable in my case. I was behind on Tulane coursework and actually used UCLA’s materials to help me move forward and get everything together on time.

    Student Picture

    Jill Tulane University ‘16, Course Hero Intern