#1 (8pts, 2pt each) You can calculate using the formulas from chapter 3 or use the tables in the back of the textbook (copies are on TRACS) to answer the following:

The amount you will have in a savings account 5 years from now if you deposit $1500 today and the bank pays you 4% compounded annually.

The amount you have to deposit today to have enough for a 20% down payment on a $200,000 house in 10 years if the savings account pays 5% compounded annually.

Repeat of above with higher yield investment: The amount you have to deposit today to have enough for a 20% down payment on a $200,000 house in 10 years if your investments return 15% compounded annually.

The amount you have to deposit today to take out $1000 at the end of year 5 and again in year 6 if the interest rate is 10% compounded annually. [Hint treat as two separate problems then add the initial amounts calculated for each]

#2 (8 pts) You are shopping for a bank to start a savings account. Acme Bank offers 5% interest compounded monthly, Bankers Bank offers 5% compounded daily, and Choice Bank offers 4% compounded continuously plus a free toaster. Calculate the effective annual interest rate for each bank (3 answers). Assuming you dont care about the toaster which bank offers the best deal?

#3 (10 pts) [Read ahead to Ch 4, we will cover Uniform Series on Tuesday] If a certain machine undergoes a major overhaul now, its output can be increased by 20% - which translates into additional cash flow of $20,000 at the end of each year for 5 years. If i = 15% per yer, how much can we afford to invest to overhaul this machine?

(4 pts) Draw the cash flow diagram including the initial (unknown) value.

(6 pts) If i = 15% per year, how much can we afford to invest to overhaul this machine?

#4 (14 pts) You have been asked to evaluate shipping costs of your new product by air or by sea. For this analysis disregard the time value of money.

When shipping by sea the product is stacked into a sea container which is placed on a flatbed truck, delivered to the port, placed on a boat and shipped across the ocean. Upon arriving at the destination port the container is again loaded onto a flatbed truck and trucked to the destination. For this problem we will only include the sea shipment costs. Typically this is paid by the container so you want to make it a full as possible. Current market rate for shipping a Standard 20 sea container from Hong Kong to Los Angeles is $1000.

Per http://www.sea-link.com/pfd/Ocean_Container_Dimensions.pdf the dimensions of a Standard 20 container

are:

(5 pts) If the outside dimensions of your products shipping box is 3 x 3 x 3 what is the per-unit cost to ship by sea? [Hint how many boxes fit, you cant ship a fraction of a box]

(5 pts) If the size of your products shipping box can be reduced by 10% in all dimensions resulting in a 30 x 30 x 30 (more boxes per container) what would be the per-unit-cost to ship by sea?

(4pts) Air freight is more complicated to calculate; its based on volume and weight and is much more expensive than sea shipment. Assuming that the cost to ship by air is $75 per unit based entirely on weight what is the incremental cost of sea versus air for each of the two box sizes? (Two answers)

#5 (10pts) Your boss has asked you to look into replacing an aging 200kW (max output, full load) diesel generator. Power draw is 100kW when the facility is operating and the facility operates 10 hours per day, 7 days a week. During non-operating hours the generator is turned off. At half load the generator consumes 9 gallons of diesel per hour. At full load it consumes 16 gallons of diesel per hour. For this analysis disregard the time value of money. Assume

Diesel fuel costs $2.08 plus a 50 cent delivery charge per gallon (3pts) What is the cost of fuel per month to operate the current generator? [Assume 1 month = 4 weeks]

(3pts) What will be the annual fuel cost savings if the existing generator is replaced with an improved 200kW (max output, full load) diesel generator that is more efficient and consumes only 7 gallons of diesel per hour at half load and 13 gallons of diesel per hour at full load. [Assume 52 weeks in a year]

(4pts) If the current generator can be sold for $10,000 and the improved generator costs $75,000 + $2500 delivery and installation charge, what is the payback period? (e.g. when will the cumulative fuel savings equal the net purchase price) Express in x.xx years, no need to convert to months/days.