Questions:
Question 1
If you want to receive a 6.5% inflation-free return on your investment and you expect inflation to be 5% per year, what actual interest rate must your earn? (Round your answer to two decimal points and do not enter the percent sign % with your answer; i.e., x.xx)
Question 2
A certain engine lathe can be purchased for $330,000 and depreciated over three years to a zero salvage value with the SL method. This machine will produce metal parts that will generate revenues of $220,000 (time zero dollars) per year. It is a policy of the company that the annual revenues will be increased each year to keep pace with the general inflation rate, which is expected to average 5.5% per year. Labor, materials, and utilities totaling $55,000 (time 0 dollars) per year are all expected to increase at 10% per year. The firm's effective income tax rate is 43%, and its after-tax MARR (im) is 26% per year. Determine the after-tax equivalent present worth. Use life of three years and work to the nearest dollar. (Do not enter the dollar sign $ with your answer.)
Question 3
Machine A was purchased three years ago for $10,000 and had an estimated market value of $1,200 at the end of its 10-year life. Annual operating costs are $1,100. The machine will perform satisfactorily for the next seven years. A salesman for another company is offering Machine B for $52,000 with an market value of $5,200 after 10 years. Annual operating costs will be $700. Machine A could be sold now for $9,000, and MARR is 16% per year. Using the outsider viewpoint, what is the difference in the equivalent uniform annual cost (EUAC) of buying Machine B compared to continuing to use Machine A; i.e., EUAC(Machine B) - EUAC(Machine A). (Do not enter the dollar sign $ with your answer.)
Question 4
A corporation purchased a machine for $60,000 five years ago. It had an estimated life
of 10 years and an estimated salvage value of $9,000. The current book value of this machine is $12,500. If the current market value is $30,000 and the effective income tax rate is 2938%, what is the after-tax investment value (rounded to the nearest whole dollar) of the machine? Use the outsider viewpoint. The after-tax MARR is 10% per year. (Do not enter the dollar sign $ with your answer.)
Question 5
A state government is considering construction of a flood control dike having a life span of 18 years. History indicates that a flood occurs every 6 years, on average, and causes $700,000 in damages on each occasion. If the state uses a MARR of 8% per year and expects every public works project to have a benefit-cost ratio of at least 1.0, what is the maximum investment (to the nearest whole dollar) that will be allowed for the dike? (Do not enter the dollar sign $ with your answer.)
Question 6
A flood control project with a life of 18 years will require an investment of $200,000 and annual maintenance costs of $15,000. The project will provide no benefits for the first two years but will save $80,000 per year in flood damage starting in the third year. The appropriate MARR is 18% per year. What is the conventional B-C ratio with present worth for the flood control project. (Enter your answer rounded to two decimal places; i.e., x.xx)