Contemporary Engineering Economics (6th Edition)
Contemporary Engineering Economics (6th Edition)
6th Edition
ISBN: 9780134105598
Author: Chan S. Park
Publisher: PEARSON
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Chapter 5, Problem 30P

(a):

To determine

Calculate the present worth.

(b):

To determine

Calculate the project balance.

(c):

To determine

Calculate the future worth.

(d):

To determine

Calculate the interest rate.

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A firm has a capital budget of $30,000 and is considering three possible independent projects. Project A has a present outlay of $12,000 and yields $4,231 per annum for 5 years. Project B has a present outlay of $10,000 and yields $4,184 per annum for 5 years. Project C has a present outlay of $17,000 and yields $5,802 per annum for 10 years. Funds which are not allocated to one of the projects can be placed in a bank deposit. Identify seven combinations of project investments and a bank deposits which exhaust the budget. Which of the above combinations should the firm choose when the bank deposit rate is (i) 15% or (ii) 20%? Explain your answer and show your work. Suppose there is no option to deposit in the bank, but the projects are "divisible" (e.g. you may have 25% of project A). Which combination should the firm choose? Explain your answer and show your work. Use 15% as the deposit rate (discount rate).
Which of the five project net cashflows presented in the table below would be considered a Conventional cashflow? Note: This is a Multiple Answer question. Please select all of the following options you think are correct? Year 1 Year 2 Year 3 Year 4 Year 5 Year 6 Year 7 Project 1 -50,000 30,000 15,000 5,000 3,000 7,000 13,000 Project 2 -50,000 -10,000 50,000 70,000 3,000 -2,000 -5,000 Project 3 -100,000 -20,000 50,000 80,000 120,000 Project 4 -70,000 -30,000 20,000 70,000 -10,000 5,000 20,000 Project 5 -80,000 -40,000 -35,000 23,000 47,000 43,000 19,000 O Project 4 O Project 2 O Project 5 Project 1 Project 3
Q10. The equation that will yield the external rate of return (ERR) of the following project is: $25,000 $6,000 Investment Cost Annual Receipts Annual Expenses Market Value $7,000 Expected Life 5 years E% 8% A. 25,000 (F/P, i%, 5) = 7,000 + 6,000 (P/F, 8%, 5) B. 25,000 (F/P, i%, 5) = 7,000 6,000 (P/A, 8%, 5) C. 25,000 (F/P, i%, 5) = 7,000 + 6,000 (F/A, 8%, 5) D. 25,000 (P/F, i%, 5) = 7,000 - 6,000 (F/A, 8%, 5) E. None
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