Q1. You are a buyer for a battery company and are investigating the purchase of lithium from an African company for $100 per barrel and $14 per barrel to process and package it before shipping. This particular source requires an 15 month lead time with material and packaging costs paid up front (at time order is placed). Transportation is $4 per barrel and paid when received. If the risk free annual interest rate is 10%, what is the value per barrel after received in the U.S.? If it is received 3 months late, how much is invested per barrel when it is received? Assume monthly compounding.
Q2. James had a rich uncle who left her a trust fund of $200,000 that earn interest at an effective annual rate of 5%
A. If she receives $23,000 annually until the funds are gone, how many payments including the final partial payment, will she receive?
B. If she take out $30,000 immediately to buy a car but no more, how much will she have in the fund at the end of 40 years when she retires?
C. If she wants the fund to be worth $1,000,000 in 45 years, how much can she withdraw today (single payment)?
D. What is the maximum amount that she can withdraw annually for 25 years, starting at the end of the coming year?
Q3. Allied Electrons must purchase a new automatic soldering machine to meet increased demand for its electronic goods. Of all the machines considered, management has narrowed the choices to the following three mutually exclusive machines. Allied uses a planning horizon of four years (all three can last this long) and a MARR of 10%. The initial cost is in Year 0 and the payments are in years 1-4. Determine the present worth, future worth, and annual worth for when a) the salvage value is in year 4, and b) the salvage value is in year 5.
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Machine 1
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Machine 2
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Machine3
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Initial Cost(in Year 0)
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$700,000
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$650,000
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$550,000
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Annual Operating Cost
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$50,000
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$90,000
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$105,000
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Salvage Value (in Year 4
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$40,000
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$32,500
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$28,750
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Salvage Value (in year 5
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$40,000
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$32,500
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$28,750
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Q4. Reputable Payday Loans (RPL) quoted Joe three loan arrangements for a $1,000 loan. The first is to pay back the loan in equal weekly payments 0.5% interest per week. A second is to pay it back in equal semi-monthly payments (on the 15th and 30th) at 1% semi-monthly interest. A third option is to pay it back in equal monthly payments at 2% monthly interest. Compounding of interest is weekly, semi-monthly and monthly respectively for each arrangement. What is the effective annual rate for each alternative? What is the annual percentage rate for each arrangement?
Q5. Technology Plus, LLC is evaluating three new product offerings. Resources are available to do any or all of these. The forecasted Cash Flows for each alternative are shown below. Which one(s) should be approved if Internal Rate of Return is the sole criteria and a MARR of 20% is used?
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Marr=20%
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CASH FLOW
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Project
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Year
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0
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1
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2
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3
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4
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5
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Model 4000
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($75,000)
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$20,000
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$20,000
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$20,000
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$20,000
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$20,000
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Model 5000
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($250,000)
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$70,000
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$80,000
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$85,000
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$85,000
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$80,000
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Model 6000
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($5000,000)
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$60,000
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$100,000
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$200,000
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$2000,000
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$2000,000
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