Exam2 Solution

# Exam2 Solution - IME 3100 EXAMINATION #2 Name: Date:...

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Unformatted text preview: IME 3100 EXAMINATION #2 Name: Date: SOLUTION 12-Mar-07 Problem 1 2 3 4 TOTAL: Points 0 Out of 100 1. In 1992, Wayne State University constructed a parking ramp with 1,000 parking spaces at an initial cost of \$10 million. It paid 20% down payment and agreed to pay off the loan for 80% of the cost at an annual interest rate of 6% over 30 years. Annual maintenance expenses for the ramp are estimated at \$20,000. Revenues from the ramp are expected in two ways: (i) monthly parking permits and flat parking rates for special events for an annual revenue of \$200,000, and (ii) meter parking at a charge of \$0.50/hour. Assume an occupancy rate for the meter parking to be 50% of the total spaces for 6 hours a day and 200 days per year. Using an interest rate of 8%, compute the net annual worth (net annual revenues net annual cost) for the parking ramp if the useful life is estimated to be 50 years. The ramp has no salvage value at that time. EOY 0 1 2 3 4 5 6 7 8 9 10 11 12 13 14 15 16 17 18 19 20 21 22 23 24 First Cost \$ 2,000,000 Mortgage Maint. Exp. Revenues \$ 581,191 \$ 581,191 \$ 581,191 \$ 581,191 \$ 581,191 \$ 581,191 \$ 581,191 \$ 581,191 \$ 581,191 \$ 581,191 \$ 581,191 \$ 581,191 \$ 581,191 \$ 581,191 \$ 581,191 \$ 581,191 \$ 581,191 \$ 581,191 \$ 581,191 \$ 581,191 \$ 581,191 \$ 581,191 \$ 581,191 \$ 581,191 \$ \$ \$ \$ \$ \$ \$ \$ \$ \$ \$ \$ \$ \$ \$ \$ \$ \$ \$ \$ \$ \$ \$ \$ 20,000 20,000 20,000 20,000 20,000 20,000 20,000 20,000 20,000 20,000 20,000 20,000 20,000 20,000 20,000 20,000 20,000 20,000 20,000 20,000 20,000 20,000 20,000 20,000 \$ 500,000 \$ 500,000 \$ 500,000 \$ 500,000 \$ 500,000 \$ 500,000 \$ 500,000 \$ 500,000 \$ 500,000 \$ 500,000 \$ 500,000 \$ 500,000 \$ 500,000 \$ 500,000 \$ 500,000 \$ 500,000 \$ 500,000 \$ 500,000 \$ 500,000 \$ 500,000 \$ 500,000 \$ 500,000 \$ 500,000 \$ 500,000 CF \$ (2,000,000) \$ (101,191) \$ (101,191) \$ (101,191) \$ (101,191) \$ (101,191) \$ (101,191) \$ (101,191) \$ (101,191) \$ (101,191) \$ (101,191) \$ (101,191) \$ (101,191) \$ (101,191) \$ (101,191) \$ (101,191) \$ (101,191) \$ (101,191) \$ (101,191) \$ (101,191) \$ (101,191) \$ (101,191) \$ (101,191) \$ (101,191) \$ (101,191) NPV= (2,670,853) NAW = (218,323) 25 26 27 28 29 30 31 32 33 34 35 36 37 38 39 40 41 42 43 44 45 46 47 48 49 50 \$ 581,191 \$ 581,191 \$ 581,191 \$ 581,191 \$ 581,191 \$ 581,191 \$ \$ \$ \$ \$ \$ \$ \$ \$ \$ \$ \$ \$ \$ \$ \$ \$ \$ \$ \$ \$ \$ \$ \$ \$ \$ 20,000 20,000 20,000 20,000 20,000 20,000 20,000 20,000 20,000 20,000 20,000 20,000 20,000 20,000 20,000 20,000 20,000 20,000 20,000 20,000 20,000 20,000 20,000 20,000 20,000 20,000 \$ 500,000 \$ 500,000 \$ 500,000 \$ 500,000 \$ 500,000 \$ 500,000 \$ 500,000 \$ 500,000 \$ 500,000 \$ 500,000 \$ 500,000 \$ 500,000 \$ 500,000 \$ 500,000 \$ 500,000 \$ 500,000 \$ 500,000 \$ 500,000 \$ 500,000 \$ 500,000 \$ 500,000 \$ 500,000 \$ 500,000 \$ 500,000 \$ 500,000 \$ 500,000 \$ \$ \$ \$ \$ \$ \$ \$ \$ \$ \$ \$ \$ \$ \$ \$ \$ \$ \$ \$ \$ \$ \$ \$ \$ \$ (101,191) (101,191) (101,191) (101,191) (101,191) (101,191) 480,000 480,000 480,000 480,000 480,000 480,000 480,000 480,000 480,000 480,000 480,000 480,000 480,000 480,000 480,000 480,000 480,000 480,000 480,000 480,000 2. As consultant to the county engineer you are requested to compare the cost of purchasing an asphalt plant versus continuing to purchase asphalt from an independent supplier and give your recommendations. The comparative costs are listed below. Use i = 10% per year. The county expects to use 7,000 tons per year and this demand is expected to last for 10 years. Use the NAC (Net Annual Cost) method for comparison. Purchase an asphalt plant: Cost of new plant = \$800,000 First year O & M costs including materials = \$100,000/yr. Geometric gradient increase in O & M and material costs = 8% each year. Salvage value of plant at EOY 10 = \$80,000 Tonnage output per year = 7,000 tons/yr. Purchase asphalt from an independent supplier: Contract price for first year = \$30.00/ton Arithmetic gradient increase each subsequent year = \$4.00/ton/yr. Purchase Asphalt Plant EOY FC/Salv O&M Cost 0 \$ (800,000) 1 \$ 100,000 2 \$ 108,000 3 \$ 116,640 4 \$ 125,971 5 \$ 136,049 6 \$ 146,933 7 \$ 158,687 8 \$ 171,382 9 \$ 185,093 10 \$ 80,000 \$ 199,900 CF \$ (800,000) NPC= \$ (1,607,361) \$ (100,000) \$ (108,000) NAC= \$ 261,591 \$ (116,640) \$ (125,971) NAC/ton= \$ 37.37 \$ (136,049) \$ (146,933) \$ (158,687) \$ (171,382) \$ (185,093) \$ (119,900) Independent Supplier EOY Cost/ton 0 NPC= \$ 275.90 1 \$ 30 2 \$ 34 NAC/7000 \$ 314,313 3 \$ 38 4 \$ 42 NAC= \$ 44.90 5 \$ 46 6 \$ 50 7 \$ 54 8 \$ 58 9 \$ 62 10 \$ 66 3. John Smart the Payback for Example: A considering the purchase of a home. Compute is firm is The seller offers a choice of two options for the payments. The loan is be paid off in annual installments. ________________________________________________________________ ________________________________________________________________ Purchase Price \$ 4. In order to improve solid waste pickup, a new mechanical arm is proposed. This arm extends from the truck, picks up garbage cans at curbside, and dumps them into the truck. The mechanical arm is estimated to last 10 years. The estimated costs are: Cost of arm = \$80,000 Salvage value of arm in 10 years = \$5,000 O&M costs for the first year =\$2,000 Increase in O&M costs = \$400/yr The mechanical arm will replace one man on the crew who now draws \$16,000 per year with anticipated increases of \$ each year. Using the NPC method and i = 10%, compare the cost of this arm with the cost of conventional pickup. Should the arm be purchased? Mechanical Arm: EOY FC/Salv 0 \$ 80,000 1 2 3 4 5 6 7 8 9 10 \$ (5,000) O&M \$ \$ \$ \$ \$ \$ \$ \$ \$ \$ 2,000 2,400 2,800 3,200 3,600 4,000 4,400 4,800 5,200 5,600 CF(costs) \$ 80,000 NPC= \$ 99,518 \$ 2,000 \$ 2,400 Purchase Arm \$ 2,800 \$ 3,200 \$ 3,600 \$ 4,000 \$ 4,400 \$ 4,800 \$ 5,200 \$ 600 One Man EOY 0 1 2 3 4 5 6 7 8 9 10 CF(costs) NPC= \$ \$ \$ \$ \$ \$ \$ \$ \$ \$ 16,000 17,200 18,400 19,600 20,800 22,000 23,200 24,400 25,600 26,800 ends from the truck, picks up years. The estimated h anticipated increases of \$1,200 onal pickup. Should the arm be \$ 125,783 ...
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## This test prep was uploaded on 04/07/2008 for the course IME 3100 taught by Professor Kailashbafna during the Spring '07 term at Western Michigan.

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