no excel show calculations 4. (20 points Many Chemicals Unlimited purchases a co

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no excel show calculations

4. (20 points Many Chemicals Unlimited purchases a computer-controlled filter for $100,000. Half of the purchase price is borrowed from a bank at 15% compounded annually, and the rest will be financed with company's own money (still need to be included in the cash flow). The loan is to be paid back with 5 equal principal payments plus interest over a 5-year period. The filter is expected to last 10 years, at which time it will have a salvage value of $10,000. Over the 10-year period operating and maintenance costs are anticipated to equal $20,000 year; however, by making the investment, annual fines of $50,000 for pollution will be avoided. The firm expects to earn 12% on its investments. Determine each of the following measures of investment worth and state whether or not the filter purchase was economically sound a) Present worth b) Annual worth c Future worth d) Internal rate of return e External rate of return

Explanation / Answer

Purchase price 100000 Company cash flow 50000 loan 50000 Loan re-payment every year Principal 10000 Interest 15% Costs 20000 Otherwise 50000 Yearly expenses on buying the filter Year 1 Year 2 Year 3 Year 4 Year 5 Year 6 Year 7 Year 8 Year 9 Year 10 Re-payment of loan 10000 10000 10000 10000 10000 Interest 7500 6000 4500 3000 1500 Operating costs 20000 20000 20000 20000 20000 20000 20000 20000 20000 20000 Depreciation 9000 9000 9000 9000 9000 9000 9000 9000 9000 9000 Total annual costs 46500 45000 43500 42000 40500 29000 29000 29000 29000 29000 362500 Total penalities paid 50000 50000 50000 50000 50000 50000 50000 50000 50000 50000 500000 Discounting it by 12% to find out present value 160986.6183 The present value of penalties to be paid is less than the purchase price of the filter The future price of penalties is more than the total yearly expenses to be paid

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