a 4 Time Value of Money chapter ae ‘annual worth and Future Worth it 4.4 presen (Feb 2014) 1% Sessional , Se aimment Company is evaluating e La Entert + that will pr Followin€ Year 5, Rs 5000; Year 6,R82,500; Year Q) wonde investme™ of each of He Year, B97500% ovide the following returns at years: Year 2, Rs !2,500; Yea’ erLa believes that it should anes Year 8, R9'2,500- Wor ‘ a) rate of 9 percent on this investment. How mu anu aiod for dig investment Powic can pay 4 800 Fo 19,000, Anwervi Determining the present worth, rts pee P - [soo asco eM 8]] 297-7) (Banat) + vat 77.) eee P= 28,295.71 + 656-4 + 6273.15 = 35,225.8 - Sessional Fest (Fev zoe) \2t sessional A) you plan to votive. 33 years from mew Tannen will live 27 years after retiring. You want +o have e nv money upon reaching vetirement a€e to withdya from the account at the bebinning of each year y. live, and, yet still have Rs 25,00,000 left in the a time of your expected, death (60 years from now). Accumulate the retirement funds b deposi fs y Making equal + pees es the end of each year for the next B3y ' at you will be able to carn 127 pen yeanone3 However, you only expect to earn 67, per year on your investment afte, ; % T you retire since you will choose to place the money in less Tisky investments. What equal annual deposits must you MaKe each year + ye Robin pga yoorlrctiremert onl 2 Puy e on2074 13.0032 » €%,27) + 18,00,000 4 18,00,000( © » 6/,26) = $118,500 4 18,00, Re? P. 23 25,00,000(E 000 + 23,40,576 = 30,394,076 : A 0-0029 A= 20,39,076( $7 a7, 39) = 6,015.9 Serrional Fest (noeij roi) 20 semrional OQ) Arvind, w youn? industrial eng analysis for some equipment 40 replace one production worxer. The ineer, prepared an economic analysis showed that she present worth of benefits (of employing one less production worker) just equalled he present worth of the equib- Ment costs, based ona 10-year useful life forthe equipment. It was decided net to purchase the equipment. A Short time later, the production workers won anew 3-year Union contract that tranted them an immediate Rs40 per hour wate increase, plus an additional Rs 25 per hour wage increase in each of the two subsedvent years. Assume that in each and every future year, an Re 25 per hour wate increase willbe granted. Arvind has been asked to revise his earlier economic analysis. The present worth of benefits of replacing one production employee will now increase. Assuming aninterest rate of a7,,the justifiable cost of the automation equipment (with a, to-year useful lifeywill increase by how ™uch? Asoume the plant operates a sintle 8-hour shift, 250 days per year. Scanned with CamScanneri 7 6.F10 raed '9) (Z 87510) hour wabe, PW= [tosaela- , 0] (E Per how’ aos 96.75) 6.710 = Re 917 5035 18,35,185 qovalicaet #478222 7S oO a ¢. To : oa 8, 35,185 is the increased justifyable cost egy Xo 18,35, i i (suly 2014) Make-up -Universily test B) rive arcual deposits inthe amounts of RS1,200, Reig ive 25600, and RS400 are made inte a fund that pays intere s te o ay, compounded armually. Determine the amou ra / immediately after the Fifth deposit. Anwwer: ? Ae Ai+G(e 20m) We need to calculate the future value inorder to < fund available at the end, of fifth deposit. Fe ACK iD) aa4.4(5 54,5) 834.4 (5.485) “University Fest: (may 2014) Q) Polymer Moulding, Ine., is considering two process facturing storm drains. Pl i con: nal ‘pat will veq.uire stating a yf oyoNes, CON Venton: mouldingat a cost of $2million.5 floating moulds is only $25,000, but because of the newness of the process, personnel and: product-reject costs are expected tobe hibher than those for a conventional process. The company expects the operating costs te be $45,000 fer year for the first Byears ands then fo decrease 4o $10,000 per year thereafter any select onthe basis of an period? _Atan interest rate of 67. per year, which process should the comp arnval worth analysis over a !4- year study Anpuser: study Period Biven is 14 years Plan A - Older Process ( conventional) ey. 1+ EAc= 20,00,000(% 267,14) + 5,000 = 2,20,200 Plan B- Virtual Engineered, Composites 4 EAc = 25000(8 +i,14) + 45000(5 1148) (42 ie a} tocoe(S 6)($ 4.14) = 25000 (0.1076) + 45000 (6 210) (0-1076)+ to000(6-975)(2-0476) = 36,076.92, J. Plan B should be selected. Univerriliy rast ( May 2014) O)As proprietor of your own business, you are option of purchasing a new high-efficiency machine to replace considering the older machines currently in use. You believe that the new technolot place four of the older machines, each with a wrre 00. The new machine will cost $5000 and, will save can be used, to re| market value of $6 the edivalent of 10,000 KW-hr of electvicity per year over the older machines. After a period of lO years neither option (new or old) willhave any market value. If you use before t2% MARR of 6%cpour fwauld you Teplace she old, today with the Tew one ie Answer t= challenger Defender (+ mks inne) pay $0.075 Per ae 168605 3-653- — 67 shoo are (vefender) Euac (Challengep) eu : oS 2 7210) Ma escenle, = sooo(% + 6% m=10)— 'oea0, = GON 6359 wees ammachines of Defender can be replaced by one Challenge Yes, replace the old machine with the New one . - Sessional Lest ( September 2014) 1°* sessional , OJ Your firm is considering the purchase of an olds of fic, with an estimated remaining service life of 25years. Th, have recently signed: loné-term leases, which leads yo that the current rental income of $150,000 per year will stant for the first five years. Then the annual rental ince ease by 107 for every five-year interval over the remai: life.You estimate that operating expenses including ince will be $45,000 fox the first year and that they will ines each year thereafter. You estimate that vazing the builds selling the let on which it standis will ealize a net amo $50,000 at the end, of 4he 25-year periods. Tf you had 4h to invest your money elsewhere and thereby earn inten vate of 127, ber ammum. What would be the maximum would be willing, to pa data given N= 25 years, ry for the building and lot atthe p Suprentirental tndone © $150, OM Costs. $48,000 for fingt ys Salvate value = $ 50,000 MARR mizy 7 00 ber year car Imereasing by $30007 $19,965 1,150 { Gi $16,500 {| Hse,c00 __ 18,000 rt 445,000. 133.938 “ 31.280 Fwati27)= [ts2, o00(& + 127, 28) +$15,000(£ 127426) 4 16,500fE 12,15) 849 $1enso( & 9 !27 Bren + 12453)* $50,000 — oe 133.394 [fevoet + #2000( 4 sinny2s) (> lan 79)| | Ps $7,83,639.69 Sessionch Fort ( seprember 2014) 1°* Sessional ©) The two cash flow transactions shown in the accompanying cash flow diatram are said to be edvivalent at 107, interest compounded annually. Find the unknown X value that satisfies the edvivalence. $200 $200 $200 $200 $100 100 ea aE Years Years Ey: Determinind the Present Worth for First Cash Flow Diagram, we have PWz 200 + 200( F »10,1)+ 100(E , 10,2) +100(E ,10,3)+ 200( F ,10,4)+ 200{F 70,5) = 200+ 200(0.9091) + 100(-8265) + 100(0-7513) +200(0.6830)+200(0-6209) = 200+161.82+ 62-65 475-13 +136-64124-18 = B00-38 Usin€ Annual Worth for substituting the two CFD, we have A X= Pw (40,5) 800.38 (0-2638) 214seoptembey 4) 1st Sessional “Sf per 2014) 1srsessional aa futur i yf thi nt cash Flow i valve o 1c fallowt é ¢ @)Fi e future valve rate is 10 inp 22 oy, Tnswer A107, 10)] (E> i.) (5 11,10) + Fintiow = [50+ 25(& Poese oC 9115)|C5 27") i 15.437 & 2594+ Re 5-10 (S72ss))is a 0+ 25(2-7255)] = 591,344 3629-87 = 9546.96 Cash uly how Foutflow =[ieo+2ee( tea) E Pie lice + 200(4 71,4) ](5 2i,4)( £ atte) + [1400-100 A+1,6)] (R746) = [loo+200(" 3e12)](8,16990(6.728) + [co+ 2ooll.38ia)](4 + [1400 -100(2- 2236)](7-718) = 8024.10 + (8975.97 + 4089.03 29) = 36089.1 “. Net F = Finflow- Foutflow = 9546.96 - 36089.1 = — -Sersignal Jert | october 2014) 2™ sessional xm Sessional OO erettn tend neces considering eve for the company principals. A GM model will have $26,000, an operating cost of $2000, and a solv: $12,000 after 3years. A FORD model wi f Whave a Scanned with CamScanner4 24,000, an operating cost of $1200, and a $18,000 resale value Fter 4 years. At an interest rate of 157. per year, which model Jhoulds the cansultin€ firm buy ? Vn pwrere : with 1=15%, using Axmual Worth Methad, we have, GM model FORD model 2,000 $300 as y | (ese Lua wil 26,000 $29,000, UAW = 26,000(% ,15,3) +2900 - EVAW = 29,000(4,15,4) + 00 -15,000(% 12,000( 4,15, 3) 2 15,000(4 515, 4) =26,000%0-4380+2,000 ~ = 29,000 & 0-3503 + !200 — 15,000% ©. 2003 = 9932 = 0354.2 -. Select FORD mowe/ Lert (Tanuary 2018) Make-up YA man avrantes to repay Rs!,00,000 bank loan in 10 edval annual pay os egy jately after his thirds installments at Izy, interest per year. Lmymeds 00 alsa at the same ee made anatreement 12,000% 0.2880 ayment, he borrows another Joan of Re 50,01 interest rate. When he borrows RS 50,000, h ng debt of the first loan ands in 12 edual annual payments. 2 payments. ith the banker to repay the rer: e entire arnount of the second lean fe First of Iz payments would, be made one year after +h eciept of the second, loan. Compute 4the amount of each of 12 paids back in (0 equal installments at Dinmwer : Re 1,00,000 is to be izy, Interest 1,00,000(% yi,to) = 100,000 (61770) = R+ 17,700 Installment Amount per year is Rs 17,700Poa _ 2 in CFD below: Total reaver Soe a as cea alia a 0,000 + 17,100 +477) 2 0,000 +17,700 (4-564) 0.tete = Bs 130,782 12) = Rs21,loB.3 A,i ants will be 130,782 2 17 (2 Annual Installme 4.2 Interest Compounded Annually 2 University est (December zo) Make-up Yh company one year a€0 borrowed Rs +,00,000 to pa new ynachine tool, abreeing to repay the loan in 25™mo payments at an annual nominal interest rate of IZ7. co: monthly. The company Tow wants to pay of f completely imé loan amount, which will be paid auring the next inst period: (J.€. at 13 installment). How ouch would this Pay assuming no penalty costs for early payout 2 i Aner: Rs 4400,000 Remaining no. of installments = 13 Future Value of remaining installments at 251? month Fas, = A(E-ist%,n=13) As 4+,00,000(% 71, 25)= 4,00,000x0.0454 Fas, = 'gleo (12.809) = 2,50,771-4 Present Value at I3menth of pending installments which payed off completely at 134” month is ‘ = 2,80,77)e = 2,80,77I4 Rez, 225547) P pending -13m leo Scanned with CamScanner“ 2 University Test (vec 2014) wane -ub QUA company entating in selling of laboratory equipment estima. tes that profit from sales should increase by RS 2,00,000 per year ifa mobile demonstration unit is built. A larée unit with sleeping accomodation for the driver will cost RS4,70,000 while a smaller unit without sleeping cabin will be Rs 6,30,000. Salvage values for the larte and small units after five years will be, Rs 97,000 and, Re 35,000 respectively. Lodging costs saved by the larger unit should, amount RS1,10,000 annually, but its transportation costs will exceed those of the smaller unit by RS 31,000. With the money +? And if so at 127. should, a mobile deemonstraton unit be b which size is preferable? Use annual worth analys' 71: FI ee Large Unit 47,000 pe een on eee 5 AWz ~(9,10,000 (41,5) + 31,000) +2, 00,0004 a7,000(4 1,5) ? = ~ (9,170,000 (0.2774) + 31,000)+ 2,08,000+ 97,000 (0-1846) = 82,171-8 Smaller Unit 25,000 AWs~ 6,30,200(4 51,5) —1,10,0004 5 2,00,000 + 2e,c00( 4 21,5) = = 6,30,000 (0.2774) ~ 110,000 + 2,00,000 + 35,000 (0.1846) =~78,301 cs Sessional Jest (February 2015) 1°* sessional BYP local newspaper headline blared “Bo Smith Siéns for $30Million’. The article revealed that, on April 1,2002, Bo Smith, the former record breaking running back from Football University, signed a $30 million packate with the Nebraska Lions. The terms of the contract were $3 million immediately, $2.4 million per year for the First Five. years (with the first payment after one year), and $3 million per year for the next five years (with the first payment at the end of 630,000 Scanned with CamScannergt rate is 8% compoundeds annvaly? what is ening ? ix). If the intere ' ees the time of contract 5 Bo's contract worth at Ammer: ao To find the worth of the amount for Bo's contract, we 72 bich is at time zero. calculate the present, wort? wabic? ' aa oe €or 8 Sy caltis [an See eee PW = 2,00,0004 2,400,000(2, 8%.,5)+[2,00,000(% » 8% » 5) (E87 »J = $20,734,618 aa Sessionak Fest (Feb2o15) |S*Sessional Year | Payments($) AIA debt of $5000 can be repaid, with eas See 2 interest at 87. compounded annually, by = EE the following, payments. 7 aoa The payment at the end of the fifth year Ss is shown as % - How muchis X ? Answer : spo0(£, 8,5) = 5,00( 5,000. annually AF? sy.compoorbed 7 5 8,4) +1000(E 58, 41s00( 5, 8,2)+ 2,000( #5851) + % ,oco( 8,1) 5,000 |. 469 =(5,00& 1-360) + (1,000% I- 260) (1,500% 1.166) + (2,000 *1-080). a TB45 = 680+ (260+ 1,749 42,160 +X x 21,496 Sessional Fost (April 2015) 2° sessional Q)An industrial firm is considering purchasing several progy: able controllers and automatiné the company's manufacturing ions. Lt is estimated, that the eduipment will initially cost $100, the labor to install it will cost $35,000. A Service contract to ma the eduibment will cost $5,000 per year. Trained Service per will have to be hired at an annual salary of $30,000. Also estim: an approximate $10,000 annual income-tax savings (cash inf much will this i i will this investment in equipment and services have to ine Scanned with CamScanner3 the annual revenues after taxes inorder to break even? The eduip- ment is estimated to have an operating life of 10 years, with no salva- be value because of obsolescence, The firms MARR is 107, pmnvalwiorth, AW = 188000(4 41,16) + 25000 wiaiana ses ab0ed end sasseaue/ veer “Income should increase by $46,964.5 inorder 4a break even + Sossicnale Yost (April 2015) 1°F sessional maxeap) OQ) For the CFD below, determine the vabe of C which maxes the net worth equal to zero with interest rate of 107. $500 Usiné the Present Worth (PW) methods, 3.741 2407 sot P = 300(E, 107 8) +500(E 10703) (E ,107.,5) Revenue—> PW. revenue = 3140-5 88 2.4091 Eyton, 7) (Z 107 Cost—> PWeost = 2¢4+€(Ks19%,7) (E r10%51) 6.425 Substituting the revenue & cost value i.e. FW revenve = PWeost BI40-5 = 6-425 J.C = 488-79 - Gassional Vert (April 2015) 1* sessional (make-up) @Q) Faiemount Textile has a plant in which employees have been having trouble with Carpal Tunnel Syndrome (CTS) (inflammationa? the nerves that pass through the carpal tunnel, a tiéht space at the base of the palm), resulting from loné-term vepetetive activities, such as years of sewind operations. It seems as if 15 of the employeesof CTS over the las, \“ ed, sind develop has been nel insurance firm, ly because of this cr, working in thie facility Deep South, the compan: ability insurance steady! the insurance premiu™s ty $1, Fair mont's Deep South is willing to lowe: HI y Abita the current $ 20000 a year) for the next B yeatmaay Faivment implements an acceptable CTS prevention brogmay includes maxing the empoyees aware of CTS and how 4a ye chances of it developing, what would be the maxiroum 3, that Fairmont should invest in the CTS prevention proéram 4 this program worthwhile? The firms interest vate is 124, cay aynvally. Answer: DeepSouth insurance firm is willing to veduce the insurance p From $0000 40 $16,000. Tf the reduction taxes place, the finn have a benefit $ 20,000- $000 = $14,000 every year. Present worth of these benefits will be he maximum a the firm can invest in its prevention program, Therefore, the maximum amount to Invest Inthe prevention 4, willbe P= $14,000(% , 127, 5) Scanned with CamScanneron omilli * Bae geil eras 0.300 28.3806, 0.030 closest rerort AWe ~10(4si,19)-4(4,1,3)-2(6 i 1a)(Aot )+5(K 1,122,415) = -4,08974 9.3822 Univenridiy tort (Suly 2015) Make Up QA new plant to produce steel tubink requires an initial investment of $10 million. I+ is expected, that after three years of operation an additional investment of $5 million will be reqpiredss and after six years of operation, another investrnent of $8 million. Annual oper- ating costs will be $3 million and annual revenues will be $8 million. The Ife of the plant is loyears. If the interest rate is !S/.per year, compounded, annually, what isthe NPVoF this plant ? Erie er eye(Pizta) -lom- a Greig? Gat 96 Sw _ _3m_ 4 syn(5.019) = 10-51 million ee 7 ary University test (May 2015) Q) compare the interest earned froman investment of $1000 for 15 years at 157. per annum simple interest, with the amount of interes: that could be earned if these funds were invested for 15 years at 157. per year, compounded, annually. Pe gioco n= ISyears i= 15%. par Simple Interest Compound Interest Fo Petxn PUtiy? = 1000 K 0-15 xI5 tooo # (1+0-15)'> = 8137-06 = 2250 = eee n 2°8137- [000 = 113 Capital Recovery Cost (definition): cbe vests G\ 27 alco oes eR: A= P(A, in) ~ (2,10) ah ”16 wensiliyr toate (may 2018) a mail-order fi OQ) rhe Smith Novelty Company y melt? hancie POMC an automatic mailin€ system to ha” ifferent team ifferently » but hm jon: The seria’ 5 Re 1,25,000 and will lasts for three yes : ine (model B) will cost R59 1,50,000, for the two Machin 2 between TWO invoices. The Firm has a choice! e wesigned 3 machines. The two machines 37 iaentical capacities and, do exactly the same machine (model A) cost: while 4he fully automatic mach lasts for four years. The expecteds cash Flows 7 elldsee Palotenance) and salvate valve 276 as fallo Tn Rs. adel A| Modal B| lanmvaloperatin€ costs 30,000 | 40,000] 15,000] Salvage Value 20,000 of 157, with an interest Tate 15 25,01 Using a study period of five years model has te be installed? Assume market value edyal to PR: 000 for one. for atwo year old semiautomatic machine and Rs 359! ge 1,000 year old fully automatic machine. 20,000 { (P) 77: : esr PW (at 157, 2 sores tpse00(E5573)— v 1,25,000(R) 28,000 ( 2, 157,5) 35,000) = 3,49,207-5 sist MODEL 'B 3.352 Pwlat 157) = 1,350,000 + 40,000(F +'4.,5) poste 15,000(E, 18754) o-s7i8 +15,000( E197 125,000 = 38,000(2 = 3yap7 Univrerraiky- Terk (May 2015) make-up Q) xn 2000, Bell Atlantic and GTE meréed to form a. tiant telecommun cations corporation named Verizon Communications. AS expected, So edjvipment incompatibilities had to be rectified, especially for longdistance and. international wireless and video services, Ove item had two suppliers - a U.S. firm(A) ands an Asian Firm (B). Approxima tely 3000 units of this eduiprnent were needed. Estivnates for vendors A and B ave biven for each unit. Determine which vendor should be Selected if the MARR is 15/.per year. A B Ivitial Cost, $ Annual Cost, § Savage Valve, + ° Life, Years to Annwer: Using Annual Worth Method, Fora’ Boce Ipooe 200%, ,i,10)~ ssc Als =-12000(4.53,8)-l600¢ 8.000(0.1993) - 3500 2000 (4,355) So = -13000(0-2983)-1600+ 2000-15) = - 5163.1 s. Select *A” Note: PW,FW ow IRR (Ineremental) methods’ can also be adsopted.. Uniasentiliz— Fert (may 20's) Mane -up 8 building ) Sunbelt Corporation, aninvestment company, iS considering.a, 50- unit apartment complex in a growing area, near Tucson, Arizona. since the lon€-term tyowth potental of the town is excellent, it is believed that the company could average 857. full occupancy for the complex, each year. If the following financial vata ave reasonably accurate estmates, determine the minimum monthly rent that should) be charéed if a 127 rate of return is duesived: +Land investment cost Rs 10 lakh - Builaing investment cost Rs 25 lakh, «Annual upkeep cost Rs !,50,000 + Property taxes and insurance =67, of total initial investment + Study period of 25 years + Salvage Value = Only land, cost can be recovered in fulls PWS: Using inva) Work Analysis So ase = SSL Pe Rey Dest (may 2015) mane DA piece of | ve ++ Not desirableUniversity Sent (may 2015) Mare -up. 7 Q) upon she birth of his first child, Dean Jones decided, to establish a savints account +o partly pay for his son's education. He plans to deposit $20 per month in the account, bet inniné whe the boy is '3 months ald. The savings and loan association has a current Interest policy of 127, per annum, compounded monthly. Assuming no chante inthe interest rate, how much will be inthe Savints account when Dean Jones son becomes I6 years olds? TLE the interest rate inereases to 157, per amnum fram the 377% month enwards, what would be the accumulated, amount inthe account when DeanJones son becomes Ie years old? Dinswer: Interest vatec given) = 127, per annum, compounded smonthly When compounded monitly, the effective interest fe Va. (i+ S12 y*_ | = 2.687 per annum 12 % Total deposit made in a year = (2menihs * ameunt deposited per erin =i2z%$20+ $240 if 8 month 4 ine tite leyears) e268 e.8 ae acf sseetn sou avoftcennias = 6970-23 +4028.6 = $10996.8 Uninsensity Sort (November 2014) Qn remotely located ait samplin€ station can be powered by Solar cells ov by running an electric line tothe site ands usin€ convention power. Solar cells will cost $12,600 to install and will have a useful life of four years with no salvate value. Annual costs for inspection, clea -ing, and other costs ave expected to be $1,400. A new power lineed tobe $ nn four years, At an inte lected on the i HH will coat $11,000 to install, , Rae year. Since the air sampling project vate value of the line is considve native Ss) ved to be Ze7O of 0% per year, which alter ould be Sell of a future worth analysis ? Annusery: SoLAR CELLS ae + euture Worth, FW= 13600(¢ 7! = $24,943-8 CONVENTIONAL LINE oa ey 80o(E si, Future Worth, FW = nooo i,4)+ 800(5 josox (-464)+(B00M 4.644), + = $19,816-8 J. Select Conventional Line Uniesersitiy-Sort (Fly 2014) Maxe-ub ) Consider the following [ Year [ProjectAfn two projects. Assume ° = 4500 interest rate of 12% and IE 1 2610 Select the best alternative 5; Fann using present worth method. Anruser-: ere [Present worth (PW) is the amount at Hime zero PWa = 4500 4+2.600(E 51241) + 2930(E,12,2)+2300(2,12,3) 3 2300 = 4500 + 2600 (0. 8424) + 2930(0.7972) +2300(6-7118) = 1803.405 PW = -29 o(B 1251) 41720(E 12 P > B= -280041210(2, 12,1) 41720(E+2,2)4 1500(E ,12, 3) Project's = = 2900+ 1210 (0-8929) + 172.0(0. 1972) +1500(0-7118) = 619.24 “? “. Project Ais selected,Scanned with CamScannerUnissersiliy— Yost (may 2014) 22 OQ) Kroon building contractor has recieved a aie a stone jon contract that will require 50,000 m? of erushe ean e canbe obtained From & dar for S years, The needed ston eth contractor has aecidveds to $5.80 per m®. As an alternaty Pe fe believes that if he owned the Cuan, and purchase the duarry- H! mie e could» TeSe| stone would only cost him $4.30! per m®. He thinks, qwarry at-the end of Syears for $40,000. Lf the contractor use: Life - syears Yearly requirement = 5000 m* TF stone is purchased, the cost willbe, 5000 x $5.8 = $290,000 If quarry (s purchased, the cost will be, 5000x $4-30l= $ 218,050 To Find the initial cost of quarry that maxes the purchase of qui feasible, we equate these two costs in the followind edu ation. stone purchase = “W4uarry purchase 290000 « PM 6715) —40000(4.5 67.15) + 218050 - - 29000 I.P = $20¢832.4 Lnitial cost of quarry < $286 832-4 Unitrersiliy~ test, (Jan 2015) Maxe-up. OAlso npunstor is veduired. to drive nl bump to remceeaaanmm aw tunnel. Two alternatives are under consideration. Alternative A calls for the constructon of an electric motor aloné with power lin at a total cost of $4,900. The salvabe value of this eduipment after four years is $700. Alternative B calls for purchase of a diesel pur} set at a cost of $1,925 with no salvage value at the end of four years of its life. The cost of diesel per hour is $0.5 and mainte ce cost of $0.55 per hour. Cost of wates charéeable whenthe diesel pump set runs is $2 per hour. How many hours of operation per year, the two machines haveto Tun So that the two alternatives P(o-2374) + 221906 Scanned with CamScanner; 23 ome: imeur equal arnual cost. If the number of hours of operation is 100 per year which alternative is more economical if the interest vate iS 12% per year? Answer: shoo Alternative ‘A’ Kt) Let = be the no.cf hours used in & year eS Cost of diesel = o. s/he Maintenance costs o-55/hY Wases = 2/hr _ e-a08z O-8292 0.3292 ~700(4,i,m)+ 4900(A.,i,n) = 1425(A 1,7) + 3-05 + Asi, AI, 3.05% = 1466.64 633.7) x + 832.4 82249 | 273.08 hovrs/year 3.68 Hy MWY IE the number of hours of operation is loo per year Es : 4 i Joo(o- 202) + 4200(4,1,4) = 1925(A-,1,4) + 305% 146-44 444900 = 19254 3.05% (x=100) ~I#6-44 44900 = 1925 + 305 4153.56 = 2230 Alternative Bis preferable 4.3 Nominal and Effective Interests Sessional York \Ferrvary 2018) 15 sessional - Q)aeoréi Rostov deposits $5,000 for the three years (starting from mow) ina Savings account that pays a 67. interest compoundeds monthly. At the end of sixth year, he deposits $4000. Two years after the $4000 deposit, he makes another two equal deposits amount of $2,500 semi-annually. Six years after the previous deposit, halfof the accumulated fund is transferved, toa fund that pays 67 interest compounded duarterly. How much money will be accumulated. in each account after ove year of this transfer?ie 6% compoundeds monthly 8 8b 4 4 6 att acboo 25° Ith py 8% Compoundied: dwarterly ° em i ' Vee? 4 is calculated: whem payrm ‘ef "8 Feb periods fo not equal to Amount Accumulat compounding periods i ” os ‘ (Annual) = URNS a OLN ue a rovoeiey er Y= (4 Ry- 4 = (14 SES) —1 lege (Semi_annual) = (14 228); = 0.03037 12 Arneurt, at i4%) yanr, = 8000 rin 617, 3)(E ji ,12)4 4000(£,i,8)+2500(E 1-6-1756) + 2800 (£, 1+ 3-097,") = Socfisee oe 2 e tHe. oa — Is 0617) 4 4000( 140.0617) “ 2500 (140, 0617)* + 2500 (1+ 0.03037) = 22706.54 6457.7 + 3580.6 4 3474.28 = 46,218.9 2 At Itz year 46, 218-9 (1-03037) = 47,622 Lofine amount = 23,811 ATISS year xy savinks Ale In Fund = 27,693.42 (1.03037) = 29,358.6 (as 276593.42(1\+0.08243) = 25774.9 (April 2015) 15 Make-up Series of monthly cash flows is deposited, into an account th 121. nominal interest compounded monthly. Each monibly de} wal to $2100. The first monthly deposit occured, on Junel, the last monthly deposit will be an Sanvary1, 2005. The the series of monthly deposits, 12% nominal interest, a oundiné) also has edvivalent quarterly withdrawals: = 8.2437 Scanned with CamScannerit. The First quarterty withdrawal] is equalty #8000 and occured oF Octader 4.1998. The last $8000 withdrawal will occur ov Tanwaryt, 2005, How much remains inthe account after the last withdrawal? Anpwen: 121, nominal interest Kombarnded mortnh) 8 €iven. This is equal Yo per month. Doing the mombly daais ¢ For Deposits, Fasnosss «$ a0o(t, Persoy ee For Withdrawals , Slegec reece Sn awarterly basis. 2 Effective —eeorrvc Teterest iste be caleulated: on uuarterly Basie Fwithavawals = $5000 (E,x08 ) | fasts Oe sn yh > oi = $193,561 . Amount remaining in tne account on Janvary i, = $255,509- $193,561 = $6\,948 Uniwerrity- Lert (Toly 2015) Maxe -op 2 Q) the ABD company is building anew plant, whose equipment main tenance costs are expected to be $500 the First year, $isothe second year, $200 the third year, $250 the fourth year, etc. jncreasin€ by $50 ber year through the 10th year. The plant is expected to have a lo-year life. Assuming the interest rate is '27., compounded quarter ly, how such should the company plan te set aside now inorder to bay for the maintenance? Draw-he Cash Flow Diagram. Anwer: Convert the iver interest rate to annual basis since whe payment is made on annual. Ta de tis, calculate effective interest rate a 2 effective interest, lege = (1+)! = (ese 2.557. per year 127, ompoundied quarterly 4 eT cemmpoundied Srv fwitin—a RL ASA, SG) > M — kod Caleulate present worth, that Bives an idea vegarainéd the amount tobe reserved) by company tor, 300, 4 {ise + SOLS £17) +Fame for fese 12-557 * interest for “eff —— SZ" for to find whe ters pnts see 4 2 isy ere 5.455 3.092-3.257 o.102, y - 3.257 = 5,328 - 3.092-3.257 = Y-3.257 = 5.226 S455 Je B.257-0.030= 3.227 sco, {150 450(3,227)} (5-226) bess ileemaat (2550 0 7 it PEO eR emer tre atol easlas Including tax and insurance, the total price was Rs 3,00,000, He is to pay for the car in 12 equal monthly payrnents, begining with the first payment immediately (in other words, the first; ment was the doun payment. Nominal interest onthe loan is I; Sombounded, monthly. After six payments (the Lown payment pl five additional Payments), he decides to Sell the car. A buyer Bérees to pay a cash amount to p ay off the loan in full at the + _ te mext payment is dive and, also to pay the ent SI, ineerind studen: y chavées for this early Payment how ‘much will the cay casts to the new bu 00,000. If there are no penalt the loan, yer? xy is eet of the car = Rs 3,00,0001, 6)(1#1) #19Q000 (1-01) +1,00,000 ) Suppose that you have lvate plan coverint the next ten years, accordind to which you put aside Re6,000 today, Rs 5,000 at the end: of every other year for the next five years, and, R5%,000 atthe ends of each year for the remaining five years. As part of this Plan, you expect to withdraw Rs 3000 at the end, of every year for the first three years, and, Rs 3500 at the end of every other year thereafter : i) Draw your cash flow diagram. ii) Determine the Net Annual Worth of the cash flow if the interest vate is 157. compaunded semiannually. i 19%, compoundeds Ci annually FS ae Fe00 Ne se sn ce eee 3 6000 AWe sooo S12 )+ 2000 G44 soo (WET =1) (1 yi ety® a cea Toe) ur 7, (Gane ven 1956)". (4 1556) —1 ' or ae a) sae =o on ny} (15 56)%t 0.1556 (1-1856 sassetareeey | po0( esse) 556 (N-| (see) araens inte =) (6000 + 2000 (2-26 2)+1500(1-1614)(0-6 48) + 800(9.308)(0~ sash xto- 2) = 2763.03 Pey yearUmi it stents (May20'5) 28 2 OQ) the manufacturiné com Uh? ‘te its suppliers. You are reqpired mine yates for its payment heriod state the best dea) for the m2” details of the bid ave as follows: : ordieds dually (360.d:By% 2 yea 127, per year combo: y, comparnaed avarterl, (BY, compor’ Sa 77, per semi-annual eampeun to deter ’ hich toon a quarterly Dasiaga ufachorer ofthe three bite Answer (Bid) 127. per year, compoundeds daily (se0days 2 year) here = (14 SE Nome once) = 57) io (2) Bid (2) 12% compounded: quarterly fee = 9:13 2 0.0325 = 3-257. (B)Bids (3) 77 per sem wal compounded: mentDly o1\? a y Tesp o(14 2:62)'-1 = o-085 = 3-5% arm evap eibesh Universite, ert (May 2015) Make-up + QAn enkineer with Becker Consulting has just recieved a bonus $10,000. If the entineer deposits it now at av interest rate of per year compounded duarterly, how many years must the accurnulate before the enfineer can withdraw $2000 ber year fore: ns: i 2000 _ . faves 2. iors = (14 S42)1 < 12.55 Using Capitalized, Cost (CC) approach for payement of 2000 every year from n+! to o,we have At ‘n’ the amount accumulated should be edval to» on 127, compounded qyarter| 10,000 A. 2000 = 15,936.53 7 7255 Jo,000 (141) = 15,936.3 (aaty? = 18293 “e,eeo cee = 1544 continued, Scanned with CamScannervn hn (+i) = Ly (594) es An (394) 9.466 on (01285) ~ 3.0823 University Lest (November 2014) O) Sacki obtained anew credit cards from a national bank, MBNA, n = 3.94 years with a stated) rate of 107 per year, compounded monthly. For a $1,000 balance at the bebinning of the year, Find the effective annual rate and the total amount owed +2 MBNA after one year, Provided: no payments are made during the year. Answer : 10" vy year (¢iven) mE Periods per year. Thus, m=z and Ta = °° 833% per month [Te calculate fase payment periods should be edjval to compounainé periods] fete = (14 By (14 2083 )%, ee = o.toay = 10.47, For $1000 balance which is not reduced during the year, F 21000 (140-1047) = 04-67 “+Tacki will pay 10-477, or lome7 plus the (000 balance, for the use of banks romney Luring the year, Univertritiy- Yer (ruly 2014) - Q) Mex deposits $5000 in a savings account that pays 67. interest, compounded, monthly. Three years later he deposits $4000, Two years later the $4000 deposit, he makes another Leposit of $2500. Four years after the $2500 deposit, half of the accumulated fund istrans- ferred, to a fund that pays BY. interest, compounded duarterly. How much money will be in each account 6 years after the transfer? eu ser! AccounT-| a Fs? compoundeds monthly (diven) WN acs ‘erg = (42%) Satie Goroos\all 5000 1,06l6-1 = 00616 = 6.16 Scanned with CamScannerFro © 8a00(14 0.0616) %4 4000 2 B9G2.044 B728-6 s4eo8 Lm corm, oe aren. (149, 0616 12a aeetd AccounT=2 avterly (ive) wndieds 7%. interest compo 3 + Nepp = (14228 )h = B.24y 2a)” Beh. w7ai.09 (140.0824 = 1404219 —. (May 204) University dest x today ands te QIA wan aeciaes te deposit $50 in the bar in 6-momths F Additional deposits every 6 months betinni £ $10 per Lebo. the First of which will be $50 and increasin| £1 = 0.06092 6,09% We need to find, future value in order to calculate te amount wi mecieves atthe end of 5%/i0%» year 'eNalve calculations canbe carried out in 2 dit Both are shown inthe CFD diagrams illustrated, below: @6-097, ers = Satr-o¢er)*s feorio( otivowon) foo ( eiee Inter polahon infin, BY v ce = sa eres si Valuesof (A. ave apie eee ou S067] 9 Repel Leone = 1884 Bieiseen ie 6eI=° milarly» 27% Calculation) (5.67-5.637)0. a =) hice = 5 2) | = Riebeoe SB) Soe 2 = 188237, 0604)? + (" Fe= 50(10609) +(e et0Creeass) score = 5.6474 = 67.24 1046.42, = 8.62 Chapter. 2 Capitalized Costs University dest, (December 2014) Mave-vb OQ) Using an interest rate of 127, what is the capitalized: cost of aturmel fo transport water through the Someshwar Mountain ranée ifthe First cost 15 RS100,00,000 and, the maintenance costs ave expected tp occur in a 6-year cycles as shown below? Sea ranin |i = 5 = Nainte = 55 50,06! nae en +4] 00,200] 2,20,0 2,60,000| 3,00, 000|3,50,600|3,50,000| Answer: Findint the Annuity of all CF ford cycle 542.512) 4 BUt2d Bre aero as) +h et2y> = 20.774244 Larhs, = 20,77, 424.9 Ea nase 4 ey 2,35,928.75_ Az 20,17,424-9( 4,16) Crevenve = © 9 oie 2 2,85,938-75 ___ cre Sa! Cota) = “revere +P = Ro l,21,32,822-9ional q sLessiomal Jost Ar" 2a) ee ion a wa iaeration by a, |g consi * Q) two large-scale conduits 87° sgt "as a Monicipal Utility a oer camuD). The Fier ne of the biel ion * Steel pipeline at a cost of BS azo mi wae ol Rs50 million. 1 a have to be replaced every 40¢37" ne Rsl0-million Per to and other operating costs are expected rescteds oF 2 cost natively, a Bravity flow canal ca” be cons 4jed tobe Rs0.z2. million. The Mao costs for the camal are exper’ increases to R year for the first four years any nee ber year, forever. If both conduit> are exP' Should be built, at an intere' Answer : With i= 10% an Alternative. Steel Pipe Line , 10,000,000 | = Son ccap2s,000,000 + Hert qoenat’ 1-42) ) a _ 225million 2.225,000,000 +100, 00,0004 108 = 326,130,000 Altermative.2 Gravity Flow Ec z 950,000,0 oo + 2002080, , 300,000 as - ere 2 1=.980,000,000-+2,000,000+2,044, 2.5 mill eee TT I+. Alternative = Steel Pipe Line is better Dest (April 2015) Make-up laintenance money for a new building has been souéht. My Jd like to make a donation fo cover all future expecteds > ce costs for the building. These maintenance costs are be $100,000 each year for the first five years, $130900 € wp years 6 throuth 10 and. $150,000 each year after that. A fs a vework which will be carried out for every 13 years ot $18,000 (4he building has an indefinite service life). Draw Flow Diaéram. Scanned with CamScannerScanned with CamScanner2 ont worth of he Siok CaPitalized, cost (cc) iene presen nite ; | to Infin Feeovering from year He 120,000 (4,5 (Getz) 20,000 +9400 4 5000(F 1,10) 7 y 100000(0- 0414) 08,300 4 5200 . 5550(5.65) + o-12 = bot, 416.67 Peeitvensitey. dort, (May 2015) “rhe Ministry of tourism of karnatana iS Panmi-nd for the. aNd maintenance of few tourism places in and around, u, The few places identified, are Barkut Fort, Koodlu Falls, Tain Karkala ete. The Bovernment is planning to put aside @ Iu, TEN IRIS a fund account so that the money from this cant For this projcct forever. The cost estimation of this project Cex Io, Waterfalis Particulars | Temples and Forts Beaches inRs) Enitial cost | 1 200,00,000 Annual — [25,000 for the Firet six yeavsandl Maintenance |ihentill 15 year Rs 43,000 ard, eae [then onwards Rs45,c00 18, 00,000 ance? ’ Majer Reworn, |'% 2° ¢ In every eight years Determine the total jump sum a A= 20,000 + 18:08° (8 5!295) emadA tolooe 15,000 23,000 30,000 + 182222 (0.1574) = 43,N6.66 3 Ho nee CC p=75,000 + 222080. (4, 12,59) 27,000 +.22,000 (LL) 19609 ad/ccal lated See Ue 1 £15,000 4.982000 ( 231% re Ste \Ure.12)80-1 Method Ais preferred = 15,312.49 Chapter. 3 Internal Rate of Return (IRR) Sessional Hest (rer! 2014) 24 Sessional Q)b company purchases a piece of construction equipment for rental pur poses. The expectesuimesnns is $ soo for the First year and then increasing ata bradient of $5 per year, ithas a useful life of Syea7s.40 in Sela nos annually e Vngh bat what 19 he prosp, shiynated © $28,000 and there is no salvade value, OF Yeturn, nedlecting tance? 120% p00 + BOS + 310+ p00 + (3100+ BIO: Bn #0, 2-29 e.. 6,000 + 15,999 °, 2 = 28,000 Fer,coo . nds sessional Sessional Hert, toctover soit) Se Seer na ~O 440 $50 et | cosider the below by fiven cash flows. c. on the Feasibility + Ao— + ES ys §OR) Cee” C43 s ~1004 99(F-5i,2) [tox to(45i-3)] (Ket 2)(Eoie2) : = 100425 425 , 40 , 50 4 60 tr tet re Te ts by calculating the MARR as 107, = 62.2 =~100428 425 440 4 50 60 hae) tage 1.2597 254 toe8 = N.0208 =-too 4 25 4 25425 4 60 13) 34 138 2-7-3 Use Interpolation tofinds IRR ~7.2-Wo2| _ 30-25 Went “ras 254 (22-25) (-Wozt) =7.3- ony 28Scanned with CamScanner(make-up) of Rs 10,00, Qmr. Khanna is plannin ne Invest in bank and earn a return © rnual NOW and give this for rent. The 27 ipa Pp 5,00,000( = st giaam Week es, 205(+ 29) + 19/000 aaa aa ° De, 2s,c00(2,i,¢)+17°7°50 (Ca Bm etettets | 2s,c00 (3-088) + 19-0072 cote ieeesisli Observation: ae Present Value of the cash Flow became netatve at i= 107%, and BY ieeyi Se) the 2 RR velue Vics between 5% andi C7 ama polation, to find the exact valve of ERR: 236,373-0 = te rRRe 54 ek me rt [236,375 +69, 550 64550 2 = 6.86%, University Lert (Fly 2015) Make-up - @) consider the below project [Praject uifetvears with Biven cash flows. Comment on the feasibility ofthe project by calculating the LRR, assume 157. MARR asScanned with CamScanneraa F 2 What is the IRR for this invest” i en determine whether the invest” 8.5 NPWeos-4.5- 4a) [er set2(4 .t10)} Ls.c6(5i,3) + 5-4] RET 8-5-4 +f teonia(s 383) 290 + ca) ; TAS — 865 -3.48 410.94 42-10 = i-of = 0.5% , [2140-12(3-074) |ataz o [s.0¢ (2.640)43.9] Ph ise -2* i v2 =-O-5-3.33+e.c241-18 Si90-46, Yr-2047/ 3-H Yoo 1 Imvestment is worthScanned with CamScannerBy Interpolation, we have, Weed Se 2 = Die. = *! Ve.06%(%=10) © University. Yost ~ Q)A company is considering ee any representatives have abree” values, which results in MARR = '3- determine which eduipme?t would Salvage Valvesl'? Life in years Annuer: Arvante the alter natives in ascenaint or Incremental IRR for the alternatives: (Me 2- mic 1) Incremental Cash Flow bl ee pypweos -1s00+ 300( E9148) + 400( Bo ba _\ sco 300( 9:235) + 400 (0.46 ver ana then calcula 287.1 NPWeo 5-15c0+ 300( 4-487) + 40008. 3: 1500 = -231h Interpolation [= ers 287. Boy Sener! olaay K2l4.62% > MARR lo+ Incremental cash Flow (mle 3 - m/e z) (E,i,8)41o0(E, NPW: ~ 8500+ 1800 ’ = 149.65 iGScanned with CamScannervanay 20147 — Q) don aarlits is a 14 ase o He is considering she pure wer The caper & new commercial lawn eliber, the Milas o the Zi PPY" Bereteminiatiractve raveorren™” is 6y., and the table provide the necessary information for the Re eeeaectinl ate of OT s all machines: decide which two aly si® to to purchase. Flow [Net cashrow 6 —] Answer: eo Netcasy Fe | atins (8) [Sea Since IRR of beth aiter- m6 408 = 6700 ee natives fs treater than ee ‘i |-—3 206 < MARR, both alternatives | — aa 56g 31EPe- _ | Beo~ dalifyfor incremental [4+ 3300 2598 ¢ue one * 20° ee analysis: s a Let or eses | =seon ese TS The ineremental cash Flow B-A is as shown in table avove- NPW +o A on ace arts6) + 2roc( 522?) as00(Ein6)=2 aia «B10 (2.0300) 2e0n aia to200 +800 ( = 281.82. «10200 + 800(4-623)4 5700(2-793.8) +2500 (0.6302) =6 re By Interpolation 261.82-0 61. + Zeon ea) ee 4 ORR © 6-827 MARR [2. Select Z tery u . A dest (January 2015) Make. Up - Wc idee roWowi O consider the following set of mutually exclusive alternative ject is preferred, based onthe vate of return onthe increm: ‘ investment Assume MARR = 157. ( Use formulae for c. , lat roe alculatsS € = Ss Ss B € S °° is = 2 o € = S Ss Boso Answer : : ogtt ANNUAL Wonrt of DEFENDER *) soo ri , ce nin tees 2 Tee : } 2 0763. ao 1 WorTH OF CHALLENG! a NA 10,500 AW, cm® (22,000-1es00)(%51,5) + | 15) awh as = 19500% 0.2774. 44500 ~ 3000 KS: 4300 ~ s000( 4 = 94370 ANNUAL WorTH oF CHALLENGER 2 - ee 4,1, 5)+3600~ S00 AW.,,, « (sto00-7500)(4,1, 5) Se Ca = (+b800 « 6.2774) + 3600 -(!500%6 = 16,263 ArmualWorth of Defender is lower than the Challenters. Ther With the old) machine. Unissenituy Sort (November 2014) -Q) the XYZ Company owns a four year-old’ pump that originalh RS 15,000 with a life of eitht years and an annual operating tenance cost of RS #,500 ber year. The saluate value of this olds b the ena of its life is expected) to be Rsis00. The Company Piannint to replace this ol offered, a new Pump for Operating cost is R51 year ane then onward sing ata tradient of Rs400. The life of thi the salvage value atthe enc of th of the old pump is e*Pecteds to vate of toy, Scanned with CamScannerScanned with CamScannerThe initial cost of Bre dl orto is Rs 3500000. The eg ? Salvage value ana annual operating cost are Sycars, and Rs 125000 respectively. If the company's MARR $107. g i+ retain the ola, edyipment or buy the new one? Anrwer: life 2980000 Defender 3500000 Challen6er Aw A Hefendier = ~ 2950000(4 ,10,0)-!seece +e 50000 F = -é46020. 318,8) ~ 125000 + 900000 ( 4, 10,8), J+ Continue with the defender. gq teersity- tert May 2014) J With an example aifferentiate between outsider's point of analysis. 4.2 Economic Life of an Asset University tert | Suly 2015) Maxe-up BOD) ip tissc3 EGE OR mvs) Aoel$) uring process asset is bemd , 9,000 - 2,500 considered for early replace- 2 8,000 -2,768) ment. Its current Market 3 6,000 SS Sane pany Estimatel + 2,000 ~ aaa future,values and Annual & a =*,500 What i's the economic service life of this Lefender ifthe interes epee? Answer: mn [SRBC EMS in) 4 Fi Eq-Aoc Jens evi 1 ['308=s000(5 1,1) + 2500 B06 qooom 0-12 = 5560 a Scanned with CamScannerScanned with CamScanneree Defender : CR )=0 as there is TE = Oct) = t0,c00 + e0(4.1-) fe) = 10,000 Te when n=1; 10000 + 800) oe 5) = 2, Te When ez; toooe +8000" +69) i cote Te When n=3; tocco + 800(¢ el Te when n=4, 10000 + 800(1-326) f ef Therefore, the economic Ife of tre # Rs e,000. Challenger spo savate valve: paver 1 lyear with a total 060 4.15.7) +1200( 2-15, fleeces ERUD= F000 ( A ,15,7) [oc = 5000 Ne 3000 ' '38c0 <. = 7381 2 5256 + a3 ) 3574 a B70 es: 2264. From the above table, i+ can be observed that the total cost ae ue ree =6,e0 S)- +i n= 5 ands started increasing there fter (n=6,enwar J. Economic Life = Syears with m! inimum EUAC = 10646 Defender| challenser | [Economic Life 1 a [Annual cost toceo | 1064e - Dan asser perchased) b Univerritiy Dest, (May 2215) Mare -up. Tits advisable fom, p defender with chal Lifeinyears| Salvatev three years agois now [| Savate Value challenfed by anew it Rs 40,000 piece of eduipment. The et Rs @0,000 present market value 3 RS 60,000 of the defender is Rs!30000, anticipated, ta Rs 20,000 Salvaée value and, iS Rs o Lit Annual operating costs (Aac) for the. What is the minimum cost life to be us, ney Kt Five years are Bives s ed while comparing, +i Scanned with CamScannerScanned with CamScannerCapital Recovery Cost Since Feo, ) 12000 (itea)= 13200 12660 (0.5762): 6914.4 | = | '2000 wtezn-4025-2 12800 (6.3155) = 3786 ea Le [ecotesaner sess | University Dest (rely) Mane-UP - Q) Tiree years ako a chemical processing plant inetaled a a cost of $20,000 to remove pollutants from waste Warer Beer eeee Reels erty river. The present 97°°C71 aaa SaWAEE Valve anal will coet$14500 fo operate nent 727s ill cost expected to increase atine Tate of $500 per year them A new system has been aesiéred to replace exist: System at a cost of $lo00e. The new system expected to have year operating of $a0cowith these costs increasing at the vi $locol ber year. The new system is estimated: to have 3: Uaeam Iz years. The salvate values of both the system at any future are expected to be zero. Ifthe interest rate is \27, conduct Yeplacement analysis based on the economic life of the asse: Arawer : For Existing Machine api ea Eqvivalent A: (A Byiny sri | Mracerien) A1+G(4,i,n) 14500 + s00(4 1,1) mers areca teoe (a + 500(S sisa) ees 7 ‘#800 + so0( A 11,5) = 14963 EUAC is Increasing every year. 2. Economic life of this machine year With minimum EUAC = 14500.Scanned with CamScannerate the Futures GD sterity , cael Tofind, the amount at the Hime ° ye ai8, 20rd ae Des re [oo Hin caee Fig = Sooa(£ ,i,15)= 500° Fe 1,00,120 (14 0" Gl,24ee? Bs " * cenver 2014) Manes UP University erst (ee unity costs BS 35,000 ei lic -Q) computers purchased by » purl! fol life of Five Years, af Yecords Indicate that they have # 09¢! Jue of RS 500: Deter mi they will be disposed of with a scrap YA following by using decline balance 7 1) Depreciation chavte duvint year harnese 1) The book value of the computers at P= 35000 n= S years F = 500 Paups= 2 Bez 2 Final value of deposit » ethos. dwo ang three ' a, of fourth year, \~ (0.0168) = Or Bay et Dps RU-RY * TF rae! x 38000 Doe 0.572 (I- = Rs 8568.96 = Da = 0.572 (1-0/572)> | * 38000 = Re 3667.34 Ba =-R)* P 2.572)* x 35000 = Rs l74.5, Unicsensilty Sort (Tuly 2015) Make-vp ; - Q)An asset has a fivst cost of RS 2,50,000 ands an expected, [i years. The estimated salvage value atthe end of ten years is Usind the st-raitht line method and declinind balance meth, depreciation determine the, i. Undepreciated, amount of capital remaining end of sixth year. inthe asset ii. The depreciation chavtes for fourth year and eidhth year,Scanned with CamScanner-O)n company 9 planning te nee a Anew machine now: The company ive, a of depreciation in their accountin’ P pine will Pe edual that the market value of the old’ 72° low. given BE SHeletePletatly ofthe two machines STe ysis approach with anin i} Using an appropriate replacement 20% pany should TePlace vate of 157,, determine whether the com! olds machine or not? Answer: Qld Machine Market Value fora Byear old: = Book Value (B3) ac B 15 fleceo DA YaHNN7tee coe R= 1-0.035 Bee (i-n)*,P 9 Bs = oes2-R cording DBM By = 07,264.7 tooee eh a ‘A ,7,12)423000-10000(4 AW = 87264.9(4,7,12) ( 2 207264, 7(01848)+23000 ~10008 ( = 30756.3 New Machine ($060 AG We 190000(4.,1,15)4 18000-1500. . (F-i,18)+ ale = 190000(0,1710)+ 18000 - jpacale.o = 50,175 4 AWnnew-machine > AWela machine +, Retafn als mach! Umissentiky tert (may 2015) Make-up On truck of mode) A has a first cost of RS15,00, saoc00 7900 and an e atthe endof life of ten years. The estimated salvage valu, . #000; Tabulate the depreciation schedule forthis true is Rs 75,Scanned with CamScanner0.786432 0.624146 i o-80332 2.019264 ett laeu7 (61,0613 Hert (November 2014) J Freeport Mining company has purchased: & comp: bold ore trading unit for $80,000. The unithas an - of toyears and a salvate valve of $10,000. Use the straig} Mouble declining balance methods 4 compare the 5. depreciation and boox valves for each year. Arpuser ght Line Method] Be 80,000 é4,c00 Si,z00 40,960 32,768 26,214.4 read 2971.5 Ye,771.19 ered easel — Weil a nea aaaae, fovs7.Gnaae ajayScanned with CamScannerArnmwer: Sore estimate!” erfe wee prest FF Firat cost= Re+b,00 + Total accumulated el lee tees oo 7 preciation + Aan interest Tat if oo peor. gee Se tw only, ane Options: only ¢ 11207" cand de tion 2 7 +o be recieves i Wy of Re locos f 2 Q)Annval equivalen* bf anincome S17 gran interest vate of dhe endef each of the vent ayLessthan Rs t000 per ye Retooo( Sr !2%> 2 toy. per yeaT? per year #) - Q)whentne interest rate | lent to $5,000 new except: pee €) $4202! two yee a) $4,545 one year abo b)$,500 oneyea? hense a) dh) Pb,050 two years hence __— » O) stare whether the below state dy rather have ents are +ruceifalse + $10,000 in \dyears (ipatlether things bein’ eqyal, =’ seat to recieve $10,060 todsay- (ithe present Value of 2 dollar on hand today (a) Tree ie False (2) i Tree i.True (cyt False Ti. Tree (a) I. False Ti. False - O) which of the followiné banks offer yous better interest deal deposit - Tustify your answer (seprember 2014, 18+ Test) Bank A + 8-57, compoundieds Quarterly Bank B: 8.657. Compou ’ Ainruren? aoe 18-57, empeended duarterly Breen 2o22 t= (14 S825 JP 1 = 8.699, per axmnem a a Scanned with CamScanner