Park F Ch 6 FEE Problem

Park F Ch 6 FEE Problem - Note 1 : Unless otherwise stated,...

Info iconThis preview shows pages 1–6. Sign up to view the full content.

View Full Document Right Arrow Icon

Info iconThis preview has intentionally blurred sections. Sign up to view the full version.

View Full DocumentRight Arrow Icon

Info iconThis preview has intentionally blurred sections. Sign up to view the full version.

View Full DocumentRight Arrow Icon

Info iconThis preview has intentionally blurred sections. Sign up to view the full version.

View Full DocumentRight Arrow Icon
This is the end of the preview. Sign up to access the rest of the document.

Unformatted text preview: Note 1 : Unless otherwise stated, all cash flows given in the problems represent after- tax cash flows in actual dollars. The MARR also represents a market interest rate, which considers any inflationary effects in the cash flows. Note 2 : Unless otherwise stated, all interest rates presented in this set of problems assume annual compounding. 6.1 Consider the following cash flows and compute the equivalent annual worth at i = 12%: A n n Investment Revenue-$10,000 1 $2,000 2 $2,000 3 $3,000 4 $3,000 5 $1,000 6 $2,000 $500 Answer AE (12%) = [-$10,000 + $2,000(P/F, 12%, 1) + +$2,500(P/F, 12%, 6)] (A/P, 12%, 6) = -$180.96 1 6.2 (A) The following investment has a net present value of zero at i = 8%: X X X X $400 $400 0 1 2 3 4 5 6 Years $2,145 Which of the following is the net equivalent annual worth at 8% interest? (a) $400 (b) $0 (c) $500 (d) $450 Answer (b) NEAW = NPW * (A/P, 8, 6) 0 = -2145 + 400 * (P/F, 8, 1) + 400 * (P/F, 8, 4) + X * (P/A, 8, 2) (P/F, 8, 1) + X * (P/A, 8, 2) (P/F, 8, 4) = -2145 + 400 * [(P/F, 8, 1) + (P/F, 8, 4)] + X * (P/A, 8, 2) [(P/F, 8, 1) + (P/F, 8, 4)] = -2145 + 400 * [.9259 + .7350] + X * 1.7833 * [9259 + .7350] = -2145 + 400 * 1.6609 + X * 2.9619 1475.64 / 2.9619 = X = 498.21 2 6.3 Consider the following sets of investment projects: Projects Cash Flow n A B C D 0 -$2,000 -$4,000 -$3,000 -$9,000 1 $400 $3,000 -$2,000 $2,000 2 $500 $2,000 $4,000 $4,000 3 $600 $1,000 $2,000 $8,000 4 $700 $500 $4,000 $8,000 5 $800 $500 $2,000 $4,000 Compute the equivalent annual worth of each project at i = 10%, and determine the acceptability of each project. Answer AE (10%) A = -$2,000(A/P, 10%, 5) + $400 +$100(A/G, 10%, 5) = $53.42 (Accept) AE (10%) B = -$4,000(A/P, 10%, 5) + $500 + [$2,500(P/F, 10%, 1) + $1,500(P/F, 10%, 2) + $500(P/F, 10%, 3)] (A/P, 10%, 5) = $470.47 (Accept) AE (10%) C = [-$3,000 - $2,000(P/F, 10%, 1) + + $2,000(P/F, 10%, 5)] (A/P, 10%, 5) = $1,045.73 (Accept) AE (10%) D = [-$9,000 + $2,000(P/F, 10%, 1) + + $4,000(P/F, 10%, 5)] (A/P, 10%, 5) = $2,659.68 (Accept) 3 6.4 (A) What is the annual-equivalence amount for the following infinite series at i = 12%? $1,200 $700 0 1 2 3 4 5 6 7 8 9 10 11 12 13 Years (a) $950 (b) $866 (c) $926 (d) None of the above Answer (a) AE (12%) = $700 + [($500/0.12) (P/F, 12%, 6)] (0.12) = $700 + [($500/0.12) (.50663)] (0.12) = $953 NB AE (12%) = $700 +$500 * (P/F, 12%, 6) 4 6.5 Consider the following sets of investment projects: Period Projects Cash Flow (n) A B C D 0 -$3,500 -$3,000 -$3,000 -$3,600 1 $0 $1,500 $3,000 $1,800 2 $0 $1,800 $2,000 $1,800 3 $5,500 $2,100 $1,000 $1,800 Compute the equivalent annual worth of each project at i = 13%, and determine the acceptability of each project....
View Full Document

Page1 / 41

Park F Ch 6 FEE Problem - Note 1 : Unless otherwise stated,...

This preview shows document pages 1 - 6. Sign up to view the full document.

View Full Document Right Arrow Icon
Ask a homework question - tutors are online