Economics Question


Important Note: You must submit your own Excel Spreadsheet file in order to get credit for this assignment. You can also submit additional documents, but in general you should be able to show all of your work in the spreadsheets. You must submit your own work. If you work with another student or compare answers, etc., you must list the names of the students that you worked with at the top of your homework. Example: I collaborated with John Doe and Bob Smith.

Chapter 6 Problems

(3 pts) A manufacturing company buys a new piece of equipment for $42,000 which is expected to last 8 years and will have a salvage value of $8,000. The new equipment will allow the company to generate new revenues of $12,000 at the end of each year. The company uses an interest rate of 8%. What is the Equivalent Annual Worth (EAW) for the project? Solve using two methods.
Using Engineering Economy Factors found in Appendix C. or Excel PMT function. Convert all values to annual values (that are not already annual). Add the annual values together to get EAW.
Use Excel spreadsheet to first calculate Present Worth by setting up a cash flow table and using NPV function. Then use PMT function to convert to an Equivalent Annual Worth.
(3 pts) What is the Equivalent Annual Cost (EAC) for each of the three options for which the annual cash flows are listed below. (Note: when calculating EAC, you should treat negative cash flows as positive values, and positive cash flows as negative values.) Use i=4%.
(3 pts) Jenny takes out a new car loan for $41,000 at 5% annual interest rate for 5 years.
What is Jenny’s monthly payment?
Solve by calculating the Present Worth of the remaining 36 payments.
Solve using Excel Spreadsheet function CUMPRINC as discussed on page 165 of text. (note: you should get same answer on b. and c.)
(2 pts) Given the costs and revenues shown below determine the Internal Rate of Return (IRR).
(2 pts) A land owner offers to sell you property for $1,500,000. Alternatively, he offers to let you make the payments shown in Option 2 over 10 years. What is the Annual Interest Rate that the land owner is offering if you take Option 2? (hint: calculate the cash flow difference for each year and use Excel IRR function.)
(2 pts) Calculate the MIRR for problem 4. if the external financing rate is 4.5% and if the external investing rate is 9%.
(3 pts) Two separate projects have the following project cash flows. Determine the benefit/cost ratio for the two projects. I = 10%
(3 pts) For the following cash flows determine:
(Simple) Payback
Discounted Payback (Answer = 5.27 years).
(3 pts) Your company has asked you to calculate Present Worth Indexes for a project with the following costs, expenses, and benefits. Your company uses an interest rate of 5%.
Calculate PW1 as described in text on page 208.
Calculate PW2 as described in text on page 208.

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