ME 3232 Homework #3, Due October 6, 2010
1.
You are given the following financial data:
•
Investment cost at
n
= 0:
$10,000
•
Investment cost at
n
= 1:
$15,000
•
Useful life:
10 years (after year 1)
•
Salvage value (at the end of 11 years):
$5,000
•
Annual revenues:
$12,000 per year
•
Annual expenses:
$4000 per year
•
MARR:
10%.
(Note:
The first annual revenue and expenses will occur at the end of year 2.)
Determine the project’s payback and discounted payback periods (ie with and without
interest consideration).
2.
Consider the following independent investment projects:
Project Cash Flow
n
A
B
C
D
E
0
1
2
3
4
5
6
7
8
9
10
$100
60
900
$100
70
70
40
40
$20
10
5
180
60
50
40
30
20
10
$200
120
40
40
20
40
30
$50
100
50
0
150
150
100
100
(a)
Classify each project as either simple or nonsimple.
(b)
Compute the
i*
for A using the quadratic equation.
(c)
Obtain the rate(s) of return for each project by plotting the PE as a function of
interest rate.
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3.
Consider an investment project with the following cash flows:
n
Cash Flow
0
1
2
3
$5000
0
4840
1331
If the MARR is 10%, what is your advice on the project?
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 Fall '10
 Lyon
 Net Present Value, Internal rate of return, Fidelity Mutual Funds

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