Answer all of them please. 9. Calculate present value at i=10 percent: time 0 1

Question

Answer all of them please.

9. Calculate present value at i=10 percent:

time 0 1 2 3 4 5 6 7 8

Cash flow $0 $0 $0 $1,250 $1,250 $1,250 $1,250 $2,250

12.Historically, operating costs have increased at an annual compound rate of 3.5 percent. Annual operating costs currently are $520,000. What is your projection of annual operating costs in five years if they continue to increase at 3.5 percent per year?

14.An investor in interested in purchasing a company and wants you to appraise its value using a MARR of 10 percent. The assets of this company were purchased four years ago for $3.5 million. The company is expected to generate an after-tax cash flow of $250,000 per year for the next 12 years, after which the investor will close the business. You anticipate being able to sell the machinery in the used equipment market for $500,000 at the end of the 12-year planning horizon. The investor wants you to determine the maximum he should pay for the company.

a. Which piece of provided information is irrelevant to the market value appraisal?

b. What is the maximum price the investor should pay for this business?

15. It is time to replace the surface for a segment of the highway. The alternatives are asphalt or concrete. Concrete is more durable, lasting 40 years compared to 20 years for asphalt. However, concrete also is more expensive, costing $38,000 per lane-mile compared to $30,000 for asphalt. The transportation authority can borrow money at 10 percent and uses this as the discount rate. Use present worth analysis to determine if the highway segment should be resurfaced with concrete or asphalt.

Explanation / Answer

Answer for question 9:

Answer for question 12:

Operating costs = $520,000

Annual operating costs if they after five years if they increase every year @3.5% =$520,000 * (1+0.035)5

= $520,000 * 1.187686306

=$617,596.88

Answer for question 14:

Answer for subpoint a: Cost of assets purchased 4 years ago for 3.5 million is irrelavant for the market value appriasal as it is an incurred cost and does not influence the decision taken by the investor.

Answer for subpoint b:Cash flows in Year 12=$250,000 + $500,000 = $750,000

Present value of cash inflows for the next 12 years is as follows:

The investor should be able to pay a maximum of $1,333,731.55

Answer for question 15:

Present worth of Concrete highway = $38,000

As the life of asphalt is half the life of concrete, it has to be again rebuilt after 20 years to be comparable with concrete option:

=$30,000 + $30,000 * present value factor at the begining of year 20

=$30,000 + $30,000 * 0.148643

=$34,459.31

As the present worth of asphalt is less when compared than with concrete, hence highway segment should be resurfaced with asphalt.

Year Particulars Amount Present value factor @10% Present value 0 Cash flows $                              -   1 $                         -   1 Cash flows $                              -   0.909090909 $                         -   2 Cash flows $                              -   0.826446281 $                         -   3 Cash flows $                              -   0.751314801 $                         -   4 Cash flows $                 1,250.00 0.683013455 $                853.77 5 Cash flows $                 1,250.00 0.620921323 $                776.15 6 Cash flows $                 1,250.00 0.56447393 $                705.59 7 Cash flows $                 1,250.00 0.513158118 $                641.45 8 Cash flows $                 2,250.00 0.46650738 $            1,049.64 Present value of cash inflows (B) $            4,026.60

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