1. You have purchased a construction equipment to start your grading business. T
ID: 1195770 • Letter: 1
Question
1.
You have purchased a construction equipment to start your grading business. The equipment cost $80,000 and you negotiated a financing package without paying any down payment. The term of the loan is as follows: interest rate at 10% per year, payment is due once a year at the end of each year, the loan is amortized for 10 years, but the unpaid balance (balloon payment) is due at the end of the fifth year. Use and show the amortization schedule to calculate the total interest paid during the 5-year period and the size of the balloon payment after the payment of the end of Year 5, (25%, show all calculations)
2.
Use Annual Worth Analysis to evaluate the following two mutually exclusive projects.
Your MARR is 10% per year and select one of the two. (25%, show calculations)
Project A Project B
Initial Cost, $ -100,000 -200,000
Annual Revenue 60,000 90,000
Annual Cost -10,000 -20,000
Lift, Years 3 4
3.
Apply incremental B/C analysis at an interest rate of 10% per year to determine which alternative should be selected. Use a 10-year study period. (25%, show calculations)
Project A Project B
Initial Cost, $ 500,000 750,000
Annual Cost 40,000 60,000
Additional Cost at
End of Year 8 20,000 40,000
Annual Benefit, $ 185,000 250,000
Explanation / Answer
1. You have purchased a construction equipment to start your grading business. T
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