1. The operating cost of a small machine is $1,600 in year one, $1,800 in year t
ID: 1101852 • Letter: 1
Question
1. The operating cost of a small machine is $1,600 in year one, $1,800 in year two, $2,000 in year theree, increasing by $200 per year through year ten. At an interest rate of %8 per year, the equvalent annual worth of the machine s what?
2. The cost of fuel for an operation are expected to be $100,000 in year three, $108,000 in year four and amounts increasing by %8 per year thereafter through year ten. At aninterest rate of 8% per year, the present worth of the fuel at year 0 is what?
3. An interest rate of 15% er year compounded monthly is equivalent to what effective interest rate per year?
Explanation / Answer
A1) $ 2374.26
Nearest to $ 2,400
A2)
Nearest to $ 60,000
A3) Let rate be r.
Hence, (1+15%/12)^12 = 1+r
=> r = 16.08% = ANswer
Rate of return r 8.00% Formula Case -> A Cash flow PV of Cash flow Year Cash flow PV of cash flow A A/(1+r)^0 0 0 $ - B B/(1+r)^1 1 -1,600 $ (1,481.48) C C/(1+r)^2 2 -1,800 $ (1,543.21) D D/(1+r)^3 3 -2,000 $ (1,587.66) E E/(1+r)^4 4 -2,200 $ (1,617.07) F F/(1+r)^5 5 -2,400 $ (1,633.40) G G/(1+r)^6 6 -2,600 $ (1,638.44) H H/(1+r)^7 7 -2,800 $ (1,633.77) I I/(1+r)^8 8 -3,000 $ (1,620.81) J J/(1+r)^9 9 -3,200 $ (1,600.80) K K/(1+r)^9 10 -3,400 $ (1,574.86) NPV (needs to be >=0 to be feasible Sum of above PVs of cash flow NPV(A) $(15,931.4965) Equivalent annual worth AW ($2,374.26)Related Questions
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