Homework 8 Solution
1. A local credit union is advertising a car loan with an APR of 4.5%. If interest is compounded
monthly, what is the equivalent annual interest rate (i.e., APY)?
Since interest is compounded monthly, we should start by dividing the no
Homework 9 Solution
3.29 A person with a degree in engineering can expect to make:
$5296 $3443 = $1853 per month
more than a person with a liberal arts degree. To calculate the future value of these monthly cash flows
using (F|A,i%,n) we need a correspond
Homework 26 Solution
8.4
For the French plant, the breakeven point is
Q
FC
$3,500,000
761 hwt
r v $8500 $3900
For the American plant, the breakeven point is
Q
8.6
FC
$2,650,000
1019 hwt
r v $12,500 $9900
For the French plant, the profit is
Profit r v Q
Homework 27 Solution
8.17
Let X be the number of miles to be treated. If we choose Alternative 1, the EUAC is
0.1030
EUAC $500,000 A | P,6%,15 $100X $51, 480 $100X
If we choose Alternative 2, we will have to apply road oil at a cost of $130 per barrel. If
Homework 28 Solution
12.1a The book value can be calculated by subtracting all of the depreciation charges from the installed cost:
BV3 = $100,000 $40,000 $24,000 $14,000 = $22,000
12.5
The installed cost of the equipment is $475,000 + $75,000 = $550,000
Homework 29 Solution
1. A new electric saw for cutting small pieces of lumber in a furniture factory has a cost basis of $4000,
a 5-year depreciable life, and no salvage value. Calculate the annual depreciation amounts and book
values each year using doub
Homework 29
1. A new electric saw for cutting small pieces of lumber in a furniture factory has a cost basis of $4000,
a 5-year depreciable life, and no salvage value. Calculate the annual depreciation amounts and book
values each year using double-declin
To Hybrid or Not To Hybrid
Gas-electric hybrid autos present a dilemma
for car buyers. On the one hand, they are
more fuel-efficient and produce lower
emissions than conventional, gasoline-only
cars. On the other hand, hybrids typically
cost thousands of
Lab Renovation Campaign (Capitalized Equivalent)
Several years ago, the Department of Civil
Engineering started a campaign to raise
money to renovate the Soils And Materials
Laboratory. We estimated costs of $150,000
to renovate the room and $100,000 to u
Lockheed Martin Example 1 (ERR Analysis)
Lockheed Martin has secured a satellite launch
contract from a European communications company
that will pay them $3.9M per year for the next 8 years.
To land that contract, they invested $13M in a satellite
tracki
Example
Project Number 1 2 3 4 5 6 7 8 9 10 11
Project New equipment to reduce labor costs Other new equipment to reduce labor costs Overhaul machine to reduce material costs New test equipment to reduce defective parts Manufacture parts that previously h
Railroad Crossing Example (Benefit-Cost Ratio)
A major city in Tennessee is studying the feasibility of eliminating a railroad grade crossing by building an overpass. Traffic engineers have estimated that 2000 vehicles per day are delayed an average of 2
Homework 25 Solution
8.46
If NPS purchases the trucks, their initial investment is $30,000 and their net revenues are $3500 per
month. If their nominal MARR is 9% per year (0.75% per month) then their payback period with
interest can be calculated as foll
Homework 24 Solution
7.22
The problem statement says “select one” so we have to assume that “do nothing” is not an option even
though these look like the equivalent of “revenue” projects because they have direct benefits.
If we use the modified B/C defini
Homework 10 Solution
1. ACME Widgets has just completed its new factory in Toluca, Mexico. During their first month of
operation, they expect to make 10,000 widgets. That amount is expected to rise by 1500 widgets per
month until the plant reaches its ful
Homework 10
1. ACME Widgets has just completed its new factory in Toluca, Mexico. During their first month of
operation, they expect to make 10,000 widgets. That amount is expected to rise by 1500 widgets per
month until the plant reaches its full capacit
Homework 11 Solution
1. Fido, Inc. has the following capital structure:
$600 million from stock sales with an average cost of 10.2% per year.
$150 million from bond sales with an average cost of 6.7% per year.
$120 million borrowed on their bank line of c
Homework 11
1. Fido, Inc. has the following capital structure:
$600 million from stock sales with an average cost of 10.2% per year.
$150 million from bond sales with an average cost of 6.7% per year.
$120 million borrowed on their bank line of credit at
Homework 19 Solution
6.5
To solve this using the ERR method, we discount all of the negative net cash flows to the start of the
project (Year 0) at the 6% MARR, compound all of the positive net cash flows to the end of the project
(Time 4) at the 6% MARR,
Homework 20 Solution
1. The corporate bond shown below was issued on July 2, 1967 with a face value of $1000. It has a
maturity date of July 1, 1992 and a coupon rate of 4%. Coupons are payable on January 1 and July 1
of each year.
Assume I purchased this
Homework 20
1. The corporate bond shown below was issued on July 2, 1967 with a face value of $1000. It has a
maturity date of July 1, 1992 and a coupon rate of 4%. Coupons are payable on January 1 and July 1
of each year.
Assume I purchased this bond at
Homework 21 Solution
1. A recent advertisement for a Dell computer is shown below. If you purchase the computer outright,
you’ll pay $1443. If you purchase the computer using their purchase plan (and, thanks to good credit,
get their lowest rate of $43/mo
Homework 21
1. A recent advertisement for a Dell computer is shown below. If you purchase the computer outright,
youll pay $1443. If you purchase the computer using their purchase plan (and, thanks to good credit,
get their lowest rate of $43/month) what
Homework 22 Solution
6.20
The overall rate of return is just the weighted average of the individual returns:
Overall ROR
$60
$140
20%
12% 14.4%
$200
$200
6.31
Since these are cost alternatives, do nothing is not an option. If the rate of return for eac
Homework 23 Solution
7.11
We have a mix of present values and annual values, so the first thing we have to do is settle on one or
the other. If we turn everything into an annual value and use the conventional B/C ratio:
0.1019
AW Benefits $3,800,000 A | P
Homework 14 Solution
5.2
NRG is going to spend $560 million to construct the solar plant. The annual operating costs (AOC) will
be $430,000 and the salvage value will be 20% of the initial cost, or $112 million. In order to earn an
18% MARR on this invest
Homework 13 Solution
4.51 This is actually a very simple capitalized cost problem because each option has just one cash flow. The
easiest way to calculate the capitalized cost of $50,000 every 5 years is to simply divide that amount by
the every-5-year in
Homework 12 Solution
4.30 Method 2 lasts for 6 years and its present worth is
3.7845
0.4323
PW2 $600,000 $100,000 P | A,15%,6 $60,000 P | F,15%,6 $952,500
In order to fairly compare this to Method 1, which has a life of just 3 years, well assume repeatabi
Homework 9 Solution
3.19
The total cost of the new facility is $54 + $14 + $10 = $78 million. The interest rate is 6% per year and
interest is compounded quarterly. Per Rule #1, the stated interest rate must be a nominal rate. When given
a nominal rate, t
Homework 6 Solution
2.80
The cash flow diagram for this problem consists of four equal cash flows of $97,000 in Years 2-5:
P
$97,000/year
0
1
2
3
4
5
We can use the P|A interest rate factor to calculate the equivalent present worth at the end of Year 1
(i