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HW4SOL-1

# HW4SOL-1 - Homework 4 Solution 1 Problem 4.10 Semiannual...

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Homework 4 - Solution 1. Problem 4.10 Semiannual bond dividend is 1000(0.05)/2 = \$25 per 6 months. Semiannual interest rate is 5%/2 = 2.5%. PW = -825 + 25(P/A,2.5%,16) + 800(P/F,2.5%,16) = -825 + 25(13.0550) + 800(0.6736) = \$+40.26 2. Problem 4.16 Monetary units are in \$ million. Calculate PW values to select alternative B. PWA = -200 - 450(P/A,12%,20) + 75(P/F,12%,20) = -200 - 450(7.4694) + 75(0.1037) = \$-3553.4525 (\$-3.55 billion) PWB = -350 - 275(P/A,12%,20) + 50(P/F,12%,20) = -350 - 275(7.4694) + 50(0.1037) = \$-2398.90 (\$-2.40 billion) PWC = -475 - 400(P/A,12%,20) + 90(P/F,12%,20) = -475 - 400(7.4694) + 90(0.1037) = \$-3453.427 (\$-3.45 billion) By spreadsheet, enter the following to display the PW values in \$ million units. PWA: = -PV(12%,20,-450,75)-200 PWB: = -PV(12%,20,-275,50)-350 PWC: = -PV(12%,20,-400,90)-475 3. Problem 4.19 (a) Use LCM = 6 years for PW analysis to select method A. PWA = -100,000[1+(P/F,10%,3)] -30,000(P/A,10%,6) -5,000[(P/G,10%,3) +(P/G,10%,3)(P/F,10%,3)]

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= -100,000[1.7513] -30,000(4.3553) -5,000[2.3291+(2.3291)(0.7513)] = \$-326,184 PWB = -250,000 - 20,000(P/A,10%,6) = -250,000 - 20,000(4.3553) = \$-337,106 (b) Use n = 3 in all calculations and do not repurchase A. Still select method A, now by a larger margin. PWA = -100,000 -30,000(P/A,10%,3) -5,000(P/G,10%,3) = -100,000 -30,000(2.4869) -5,000(2.3291) = \$-186,253 PWB = -250,000 - 20,000(P/A,10%,3) = -250,000 - 20,000(2.4869) = \$-299,738 4. Problem 4.22 (a) LCM is 6 years for R and T evaluation. Select vendor T. PWR = -75,000[1+(P/F,10%,2)+(P/F,10%,4)] - 27,000(P/A,10%,6) = -75,000[1 + 0.8264 + 0.6830] - 27,000(4.3553) = \$-305,798 PWT = -125,000[1+(P/F,10%,3)] + 30,000[(P/F,10%,3)+(P/F,10%,6)] -12,000(P/A,10%,6) = -125,000[1 + 0.7513] + 30,000[0.7513+0.5645] - 12,000(4.3553) = \$-231,702 (b) Re-purchase R after 2 years. Rental is paid at the end of each year.
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HW4SOL-1 - Homework 4 Solution 1 Problem 4.10 Semiannual...

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