1. A general rule of thumb is that your monthly mortgage payment should not exceed 28% of your household's gross monthly income. Consider the situation of Jerry and Tracy, who just committed to a $300,000 mortgage on their dream home. They have reduced their financing choices to a 30-year conventional mortgage at 6% APR, or a 30-year interest-only mortgage at 6% APR. Which mortgage, if either, do they qualify for if their combined gross annual income is $70,000? 2. A piece of new equipment has been proposed by engineers to increase the productivity of a certain manual welding operation. The investment cost is$ 25,000, and the equipment will have a market value of $5,000 at the end of a study period of five years. Increased productivity attributable to the equipment will amount to $8,000 per year after extra operating costs have been subtracted from the revenue generated by the additional production. If the firm's MARR is 25% per year, is this proposal a sound one? Use the PW method. 3. The following data have been estimated for two mutually exclusive investment alternatives, A and B, associated with a small engineering project for which revenues as well as expenses are involved. They have useful lives of 3 and 5 years, respectively. If MARR = 10% per year, show which alternative is more desirable by using equivalent-worth methods. Use the repeatability assumption Project A Investment $5,000 $6,000 Cashflow/yr. $1450 $1600 Useful Life Salvage Value $500 $500