Contemporary Engineering Economics (6th Edition)
6th Edition
ISBN: 9780134105598
Author: Chan S. Park
Publisher: PEARSON
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Chapter 15, Problem 5ST
a:
To determine
Calculate the present worth.
b:
To determine
Calculate the new present worth.
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Maintenance money for an athletic complex has been sought. Mr. Kendall, the Athletic Director, would like to solicit a donation to cover all future expected maintenance costs for the building.
These maintenance costs are expected to be $1.2 million each year for the first five years, $1.6 million each year for years 6 through 10, and $1.9 million each year after that. (The building has an
indefinite service life.)
If the money is placed in an account that will pay 7% interest compounded annually, how large should the gift be?
Click the icon to view the interest factors for discrete compounding when i = 7% per year.
The gift should be $31.35 million. (Round to two decimal places.
More Info
N
1
2
3
4
5
67899
10
Single Payment
Compound
Amount
Factor
(F/P, I, N)
1.0700
1.1449
1.2250
1.3108
1.4026
1.5007
1.6058
1.7182
1.8385
1.9672
Present
Worth
Factor
(P/F, I, N)
0.9346
0.8734
0.8163
0.7629
0.7130
0.6663
0.6227
0.5820
0.5439
0.5083
Print
Compound
Amount
Factor
(F/A, I, N)
1.0000
2.0700…
A client has an existing CAD/CAM system that costs $95,000 per year to lease (payable at the end of each year of use) and a new contract the client is considering entering will fix the price for over the next four years. The client is also considering purchasing a CAD/CAM system to replace its currently leased system (rather than renewing / entering a new lease contract). The new system will cost $450,000 to purchase and install. The system has an estimated life of five years, when it is expected to become obsolete, but it will have a salvage value of $25,000. The interest rate is projected to be 6% per year during the life of the project.
a. Draw a cash flow diagram for the next four years for the existing system (leased system) and a separate cash flow diagram for the system that is being considered for purchase.
b. For each option (leasing and buying), calculate the value of all cash receipts and disbursements at the end of the third year.
c. Compare the value of each option at…
A manufacturing company leases a building for $100,000 per year for its manufacturing facilities. In addition, the machinery in this building is being paid for in installments of $20,000 per year. Each unit of the product produced costs $15 in labor and $10 in materials. The product can be sold for $40. what are the following
1. How many units per year must be sold for the company to breakeven?
2. If 10,000 units per year are sold, what is the annual profit?
3. If the selling price is lowered to $35 per unit, how many units must be sold each year for the company to earn a profit of $60,000 per year?
4. If the labor cost is increased by 10% and materials cost is increased by 5%, the number of units to break even is closest to:
Chapter 15 Solutions
Contemporary Engineering Economics (6th Edition)
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