1. Tony invested $15,000 in a high yield account. At the end of 30 years he clos

Question

1. Tony invested $15,000 in a high yield account. At the end of 30 years he closed the account and received $539,250. Compute the interest rate he received on the account. 2. Consider the following investment in a piece of land: Purchase price Annual maintenance $10,000 $100 $20,000 Expected sale price after 5 years Determine: a. The rate of return. b. What is the lowest sale price the investor should accept if she wishes to earn a return of 10% after keeping the land for 10 years? 3. The manager of a local restaurant is trying to decide whether to buy a charcoal broiling unit or an electric grill for cooking hamburgers. A market study shows customers prefer charcoal broiling but the unit is more expensive. The manager's MARR is 20%. The manager estimated the costs and net benefits from the two alternatives as follows End of Year Broiler Grill $2,200 $1,450 +990 0 +710 To determine which alternative the manager should choose a. Use the incremental rate of return analysis b. Use the payback period method c. Use the benefit/cost method 4. A young engineering graduate is interested in buying a solar energy system for her home She is investigating two particular systems shown below: Solarex Soltech Initial cost Annual maintenance cost Annual savings in heating costs Salvage value (end of life Expected life 100/year ear 70 ar 400 15 yearS Use an analysis period of 20 years. Select the most desirable one based on a MARR of 6% using the following methods a. Internal rate of return b. Payback period c. Benefit/cost

Explanation / Answer

1. FV = PV(1+i)n

539250 = 15000(1+i/100)n

35.95 = (1+i/100)30

1.1268 = 1+ i/100

1.1268-1 = i/100

0.1268 x 100 = i

i = 12.68%

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