1. A taxicab company maintained accurate records of the expenses for one of its automobiles from January 1, 1996 through January 1, 2002. It is found from the records, the annual operating expense is $4,000. The maintenance and repair costs are $500 for 1996, $1,000 for year 1997, $1,500 for year 1998, and so on. What is the net present cost of owning and operating the automobile, if its initial price was $30,000 and the interest rate is 5%?
2. A municipal contractor has agreed to construct an electric power plant and to deposit sufficient money in a perpetual trust fund to pay a $10,000/year operating cost and to perform a major renovation to the plant every 15 years at a cost of $200,000. The first renovation is to take place fifteen years from now. The plant itself will initially cost $500,000 to construct. If the trust fund earns 10% interest per year (compounded annually), what is his capitalized cost to construct the plant, to make the future periodic renovations, and to pay the annual operating costs forever.
3. PARC Co. has asked you to recommend a new nutcracker machine. After months of hard research, you have collected the following data:
Discussions with the accounting department reveal that a loan must be secured to purchase any machine. The loan data is as follows:
The loan payments will be made annually. The lender will charge 12% interest with annual compounding. Calculate the net present worth of each machine and recommend which machine to purchase. Use a MARR of 15%.
4. The following cost data for a maker of oilrigs is available. Calculate EUAW at a MARR of 15% and choose the better of the two alternatives.
5. A farmer is considering the installation of a fuel storage system that will save $0.065 per gallon because the fuel can be purchased in bulk. The farmer uses about 20,000 gallons per year. The system will cost $10,000 to install. The annual operating and maintenance costs will be zero in the first year but will increase by $25 each year thereafter. The system will have a salvage value of $3,000 after ten years. The farmer's cost of funds is 12%.What is the equivalent uniform annual worth (EUAW) for the fuel storage system? Based on this analysis, should the farmer purchase the fuel storage?
6. Chuck purchased a corporate bond was purchased for $8,950. The face value of the bond is $10,000 and matures after 10 years. The bond pays a 13% interest with quarterly dividends. Determine the effective interest rate that Chuck would receive when the bond matures, if it has paid dividends as scheduled.
7. Stephen Zehnder, an enterprising engineer, wants to get into business. He is looking at the following two alternatives. He has compiled the cost data for both alternatives as shown in table below. After 20 years, he plans to sell the business at double the initial cost. Stephen wants to have at least a rate of return of 12% on this business investment. Based upon incremental ROR analysis, which one should he choose?
8. Given the following cash flows for an investment of $5,800 at time "0", determine the ROR to the nearest second decimal place.
