HW 2 solutions

# HW 2 solutions - IT 45000 Production Cost Analysis HW 2...

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IT 45000 – Production Cost Analysis Page 2 of 5 HW 2 1. What compound interest rate per year is equivalent to a 12% per year simple interest rate over a 15- year period? 2. How much could Tesla-Sino Inc., a maker of superconducting magnetic energy storage systems, afford to spend now on new equipment in lieu of spending \$85,000 five years from now? The company’s rate of return is 18%. 3. French car maker Renault signed a \$95 million contract with ABB of Zurich, Switzerland, for automated underbody assembly lines, body assembly workshops, and line control systems. If ABB will be paid in 3 years (when the systems are ready), what is the present worth of the contract at 12% per year interest? 4. A pulp and paper company is planning to set aside \$150,000 now for possibly replacing its large synchronous refiner motors. If the replacement isn’t needed for 8 years, how much will the company have in the account if it earns interest at a rate of 8% per year?7 (1 ) compound ) simple setting both equal to each other: n F P i F P ni  15 15 15 ) ) ) 1 (15)(.12) ) 2.80 1 2.80 1 1.0711 7.11% n P i P ni i i i i i    ( / ,18%,5) 85,000(0.4371) \$37,153.50 P F P F P ( / ,12%,3) 95,000,000(0.7118) \$67,621,000 P F P F P ( / ,8%,8) 150,000(1.8509) \$277,635 F P F P F

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IT 450 – Production Cost Analysis Page 3 of 5 HW 2 5. A mechanical consulting company is examining its cash flow requirements for the next 7 years. The
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HW 2 solutions - IT 45000 Production Cost Analysis HW 2...

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