CVE4000 Widener University Florida Tech Problems Worksheet

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Note:In the solution for each of the problems below, use the appropriate form of factors (see example below), then use the tables of compound interest to look up the value of the factors.Do not use the interest formulas.


Question 1 (10 points):Compute the present worth of the following cash flows given an interest of 5%.

Question 2 (20 points):Florida Tech is considering buying a new shuttle bus.There are two shuttle bus models, Panther and Bobcat, each with a 10-year life.Interest rate is 8%.Cash flows for the two models are as follows

  • Using Present Worth (PW) analysis, which shuttle bus should the Florida Tech buy, and why?
  • Before the Florida Tech can close the deal, the dealer sells out of model Bobcat and cannot get any more. What should the Florida Tech do now, and why?

Question 3 (10 points): Given the following cash flows

Compute the Equivalent Uniform Annual Benefit (EUAB) based on an 8% interest rate.

Question 4 (10 points): A 30-year mortgage for $95,000 is issued at a 6% nominal interest rate

  • What is the monthly payment?
  • How long does it take to pay off the mortgage, if $1,000 per month is paid?
  • How long does it take to pay off the mortgage, if double payments (twice the payment calculated in part a) are made?

Question 5 (20 points):A student borrowed $8,000 from a bank.He must pay $300 at the end of each month for the next 30 months.

  • What is the monthly interest rate he is paying?
  • What is the effective annual interest rate he is paying?

Question 6 (10 points):A new machine can be purchased today for $400,000.The annual revenue from the machine is calculated to be $77,000, and the equipment will last 10 years.Expect the maintenance and operation costs to be $4,000 a year and to increase $700 per year.The salvage value of the machine will be $30,000.

  • Draw a cash flow diagram for this project.
  • What is the rate of return for this machine?

Question 7 (30 points):Two mutually exclusive alternatives are being considered.Both have lives of 5 years.Alternative 1 has a first cost of $2,500 and annual benefits of $746.Alternative 2 costs $6,000 and has annual benefits of $1,664.The minimum attractive rate of return (MARR) is 8%.

  • Use present worth analysis to determine which alternative should be selected.
  • Use annual cash flow analysis to determine alternative should be selected.
  • Use rate of return analysis to determine alternative should be selected.
 
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