Chapter 6 - Homework

CHAPTER 6 ANNUAL CASH FLOW ANALYSIS (50 points) Multiple Choice - Show your work (5 points each) 6.1. Evaluate the value of A from the cash flows shown in table below using an interest rate of 7% compounded annually. A) $734.63 B) $1,049.97 C) $955.11 D) $874.80 6.2. Determine the value of EUAW from the cash flow diagram shown below. i = 9%. 0 1 2 3 4 5 6 A) $328.25 B) $377.75 C) $569.75 D) $451.06 6.3. Given: Cash flows for an investment. Year 1 2 3 4 5 Cash flow $1400 1500 1600 1700 -2,000 Required: EUAC at 7% per year. A) $674.63 B) $849.97 C) $925.68 Year 0 1 2 3 4 5 Cash Flow -$15,000 5A 4A 3A 2A 5A 2000 7,500

D) $764.80 6.4. Jason bought a car for $40,000 upon graduation from college with an engineering degree and a very good job offer. A down payment of $5,000 was paid by his dad as graduation gift. The rest of the amount was financed with Generous Motors at 6% nominal interest with 60 monthly payments, the first payment which is to start at the end of 13 th month. Determine his monthly payment. A) $583.33 B) $717.38 C) $652.68 D) $752.67 6.5. An investment set up as a perpetual trust provides an annual disbursement of $25,000 for the first 20 years and an undetermined amount from year 21. If the trust is set up with $500,000, determine the disbursement that can be made from year 21 through infinity if the interest earned is 6% per year. A) $41,031 B) $54,000 C) $60,090 D) $58,500 6.6. A couple, both engineering alums from a reputable engineering school has decided to set up an endowment to help pay for 4 engineering scholarships at the rate of $X per year starting year 21 perpetually. If $200,000 is invested in the trust today and if it earns a very good rate of return of 12% per year, what will the amount of each scholarship starting year 21? A) $49,756.2 B) $57,876 C) $62,110.5 D) $41,932 6.7. For the cash flows given in the table below, evaluate the unknown value "A". Use an interest rate of 6%. Year 0 1 2 3 4 5 Cash flow 22,000 -2A -2A -2A -2A -5A

A) $1,982.57 B) $2,062.55 C) $1,862.55 6.8. Choose the best alternative among the three alternatives given in the table below. Use of annual cash flow analysis is required. A B C Initial cost $4500 $1900 $1200 Annual benefit $2800 $700 $300 Salvage value $500 $900 0 Life in years 2 years 3 Years Infinity MARR 5% A) A B) B C) C 6.9. The cost data for two equipment alternatives are given below. Determine the better alternative using the annual cash flow analysis. A) Machine X B) Machine Y 6.10. Given the financial data for three mutually exclusive alternatives in the table below, determine the best alternative using the annual cash flow analysis for a MARR of 8%. A) A Machine X Machine Y Initial cost $200,000 $180,000 Net Annual Benefit 30,000 24,000 Salvage value 45,000 20,000 Life in years 20 15 MARR 9% A B C First cost $45,000 $25,000 $20,000 O &M Cost/ year 10,000 4,000 1,900 Benefit/year 18,000 13,000 9,000 Salvage value 3,000 6,000 4,600 Life in years 5