Chapter 5

A firm is considering buying device A or B. Each device can reduce costs. Each device has a useful life of 5 years, and no salvage value. Device A saves $300 a year, device B saves $400 the first year, but savings in later years decrease by $50 a year. Interest is 7%. What would the NPW of device B be?

• $1,257.65

• $1,230

Given the following data, use present worth analysis to find the best alternative: A, B, or C.

• All alternatives have the same present worth.
• Alternative A

• Alternative B

• Alternative C

A diesel manufacturer is considering the two alternative production machines depicted in the figure. The manufacturer uses an interest rate of 8% and wants to use the PW method to compare these alternatives over an analysis period of 10 years. What is the PW (Alternative 1)?

• -$62,839

• -$64,076

• -$69,442

A diesel manufacturer is considering the two alternative production machines depicted in the figure. The manufacturer uses an interest rate of 8% and wants to use the PW method to compare these alternatives over an analysis period of 10 years. What is the PW (Alternative 2)?

• -$62,839

• -$64,076

• -$69,442

A donator wants to set up a scholarship fund to provide $20,000 yearly to deserving students. The university will invest the donation, and expects it to earn 10% a year (i.e., i=10%). How much will the donator need to donate in one lump sum so that $20,000 is available every year?

• $2,000

• $200,000

• $220,000

Find the effective interest rate for a 15-year cycle & the capitalized equivalent worth:

• 107.893% &

  $283,387

• 134.382% &

  $463,423

• 107.893% &

  $463,423

• 134.382% &

  $283,387

Calculate the capitalized cost of A. Use 12% interest rate.

• $957,920

• $350,000

• $463,432

Calculate the capitalized cost of B. Use 12% interest rate.

• $983,054

• $1,008,830

• $1,263,968

Assuming an interest rate of 12%, which alternate should be chosen?

• Alt. A

• Alt. B

• Alt. C