Problem 1: Consider two alternatives below. Use B/C analysis to answer 1) Which option is a viable option (Option A, Option B or both) and 2) provide a choice between two options. Include cash flow diagram, calculations and words to make your conclusion.
|
Option 1 |
Option 2 |
|
|
Initial Cost |
$4,500 |
$6,000 |
|
Annual Revenue |
$1,600 |
$1,850 |
|
Annual Expense |
$400 |
$500 |
|
Salvage |
$800 |
$1,200 |
|
Useful life & interest rate |
8 years & 15% |
10 years & 15% |
Problem 2: Using MARR = 9%, determine IROR, and make your recommendation on which option to choose. Useful life of both options is 3 years. Draw all three (3) cash flow diagram to receive full credit.
|
Option A |
Option B |
|
|
Initial Cost |
$100 |
$140 |
|
Cost at Yr 3 |
$100 |
$0 |
Problem 3: If you borrowed $100 for I = 6% and payback is $25/year, determine the pay back period. Show all steps on how you derived to the answer.
Problem 4: Determine if the breakeven annual revenue is a viable option. Be sure to explain in words your reasoning.
Initial cost: $30k
Annual O&M: $500/yr
Salvage: $100
Annual Revenue: $2.5k/yr
Life Span: 24 years
i = 2%
Problem 5: A new Corporate bond was initially sold by a stockholder to an investor for $950. The issuing corporation promised to pay the bondholder $40 interest every 6 months and $1,000 will be repaid at the end of 9 years. What is rate of return, nominal interest rate and effective interest rate.
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