1. Determine the rate of return of the following investment using calculator.
|
Year
|
$
|
|
0
|
-5000
|
|
1
|
1000
|
|
2
|
2000
|
|
3
|
3000
|
|
4
|
4000
|
2. A consulting company plans to purchase a new computer network for $125,000 to save $35,000/year over its projected 9 year life from doing all their CAD activities in house. At the end of its life, the salvage value of this system is estimated to be $12,500. What is the rate of return of this investment (I want the actual rate) and is it a good idea if the MARR = 8%/year?
3. An individual has $50,000 to invest. The government treasury bills (T-bills) pay 3.5% interest per year. She considers investing in the stock parket instead, by buying a stock that now sells for $35 each and pays an anuual dividend of $7/per stock. She thinks that after 7 years the stock will be selling for $55 each. What is the rate of return of the stock investment and is it a better deal than the T-bills?
4. Compare the following two alternatives by the IRR method, given MARR of 6%/year.
|
Alt.
|
Construction cost $
|
Benefits $/yr
|
Salvage $
|
Service Life (yrs)
|
|
A
|
110,000
|
45,000
|
10,000
|
7
|
|
B
|
275,000
|
55,000
|
25,000
|
7
|
5. Compare the following two alternatives by the IRR method, given MARR of 8%/year.
|
Alt.
|
Construction cost $
|
Benefits $/yr
|
Salvage $
|
Service Life (yrs)
|
|
A
|
510,000
|
145,000
|
10,000
|
7
|
|
B
|
775,000
|
155,000
|
20,000
|
9
|
6. Compare the following 3 alternatives of the same service life (5 years) using the DROR (Differential Rate of Return) method with a MARR = 10%/year. Verify your hand calculations using the Excel's built in function.
|
Year
|
A
|
B
|
C
|
|
0
|
-250,000
|
-400,000
|
-1,000,000
|
|
1
|
300,000
|
350,000
|
650,000
|
|
2
|
450,000
|
475,000
|
500,000
|
|
3
|
350,000
|
425,000
|
450,000
|
|
4
|
300,000
|
350,000
|
400,000
|
|
5
|
200,000
|
250,000
|
300,000
|