1.You have been asked to evaluate two alternatives, X and Y, that may increase plant capacityfor manufacturing high-pressure hydraulic hoses. The parameters associated with eachalternative have been estimated. Which one should be selected on the basis of a present worthcomparison at an interest rate of 11% per year? Why is yours the correct choice?
| Alternative | X | Y |
| First Cost | $-25,000 | $-90,000 |
| Maintenance cost, per Year | $-9000 | $-6000 |
| Salvage Value | $4,500 | $14,500 |
| Life | 5 years | 5 years |
The present worth of alternative X is$and that of alternative Y is $.
Alternative (Click to select) Y Xis selected by the company.
2.
Required information
In order to provide drinking water as part of its 50-year plan, a west coast city isconsidering constructing a pipeline for importing water from a nearby community that has aplentiful supply of brackish ground water. A full-sized pipeline can be constructed at a costof $90 million now. Alternatively, a smaller pipeline can be constructed now for $60million and enlarged 15 years from now for another $80 million. The pumping cost will be$25,000 per year higher for the smaller pipeline during the first 15 years, but it will beapproximately the same thereafter. Both pipelines are expected to have the same useful lifewith no salvage value.
At an interest rate of 6% per year, which alternative is moreeconomical?
The present worth of the full-sized pipeline is determined to be$and that of the small-sized pipeline is $.
The (Click to select) small fullpipelineis the most economical pipeline.
3.The product development group of a high-tech electronics company developed fiveproposals for new products. The company wants to expand its product offerings, so it willundertake all projects that are economically attractive at the company’s MARR of 13% peryear. The cash flows (in $1000 units) associated with each project are estimated. Whichprojects, if any, should the company accept on the basis of a present worth analysis?
| Project | A | B | C | D | E |
| Initial Investment | $-700 | $-800 | $-650 | $-1,000 | $-1,350 |
| Operating Cost, per Year | $-80 | $-140 | $-300 | $-270 | $-670 |
| Revenue, per Year | $300 | $225 | $550 | $775 | $575 |
| Salvage Value | $2 | $12 | $2 | $90 | $90 |
| Life | 3 years | 10 years | 5 years | 8 years | 4 years |
The present worth of project A is $.
The present worth of project Bis $.
The present worth of project Cis $.
The present worth of project Dis $.
The present worth of project Eis $.
Project A is (Click to select) rejected accepted.
Project Bis (Click to select) rejected accepted.
Project Cis (Click to select) rejected accepted.
Project Dis (Click to select) rejected accepted.
Project Eis (Click to select) accepted rejected.
4.You and your partner have become very interested in cross-country motorcycle racing andwish to purchase entry-level equipment. You have identified two alternative sets ofequipment and gear. Package K has a first cost of $140,000, an operating cost of $7,500perquarter, and a salvage value of $40,000 after its 2-year life. Package L has a first cost of$210,000 with a lower operating cost of $3,900per quarterand an estimated $29,000salvage value after its 4-year life. Which package offers the lower present worth analysis atan interest rate of 20% per year, compounded quarterly?
The present worth of package K is $and that of package L is $.
(Click to select) Package K Package Loffers the lower present worth.
5.A small strip-mining coal company is trying to decide whether it should purchase or lease anew clamshell. If purchased, the “shell” will cost $160,000 and is expected to have a$57,500 salvage value after 6 years. Alternatively, the company can lease a clamshell foronly $19,000 per year, but the lease payment will have to be made at the beginning of eachyear. If the clamshell is purchased, it will be leased to other strip-mining companieswhenever possible, an activity that is expected to yield revenues of $12,000 per year. If thecompany’s MARR is 16% per year, should the clamshell be purchased or leased on the basis of afuture worth analysis? Assume the annual M&O cost is the same for both options.
The future worth when purchased is $.
The future worth when leased is $.
The clamshell should be (Click to select) leased purchased.
6.What is the present worth difference between an investment of $30,000 per year for 40years and an investment of $30,000 per year forever at an interest rate of 12% per year?
The difference is determined to be $.
7.Two methods can be used to producesolar panels for electric power generation.Method 1 will have an initial cost of $660,000, an AOC of $150,000 per year, and$115,000 salvage value after its 3-year life. Method 2 will cost $950,000 with an AOCof $115,000and a $250,000 salvage value after its 5-year life. Assume your boss askedyou to determine which method is better, but she wants the analysis done over a three-yearplanning period. You estimate the salvage value of Method 2 will be 33% higher after threeyears than it is after five years. If the MARR is 10% per year, which method should thecompany select?
The company should select (Click to select) method 1 method 2.
8.How much must you deposit each year into your retirement account starting now andcontinuing through year 12if you want to be able to withdraw $90,000 per yearforever, beginning 32 years from now? Assume the account earns interest at10% per year.
The amount to be deposited is determined to be$