20 points 1. Futuristic Electric Vehicles is offering customers who can make an initial payment of $10,000 an opportunity to defer their first car payments for 12 months. The purchase price is $65,000 which includes all taxes and documentation fees. You make an initial payment of $10,000 and accept the dealer's finance plan to pay the balance of $55,000 monthly over a 5-year period following the initial 12-month deferral period. The nominal interest rate is 6% per year for all years and interest accrues monthly during the 12 months' deferral period. a. Draw the cash flow diagram from your perspective. b. What are your future monthly payments (months 13-72)? C. You would like to pay off your loan when you make your 36" payment. What will be the payoff for the loan including the 36 payment? 20 points 2. Your company purchases a new heavy-duty truck from a dealer in another town. The initial cost is $55,000, sales tax is $3,500, and the dealer charges $500 for delivery of the truck to your company. Maintenance will be provided by the dealer at no additional charge for the first 2 years. Future maintenance cost is estimated to be $2,000 beginning the EOY 3 increasing at $500 per year thereafter for EOY 4-10. At the end of 10 years the truck will be sold for its estimated value of $5,000. The additional revenues to the company due to the use of the new heavy-duty truck are estimated to be $15,000 EOY 1 and EOY 2. Your company's MARR is 25%. a. Draw the cash flow diagram from the company's perspective. b. What would be the minimum uniform annual revenue for EOY 3-10 for the purchase of the new truck to be profitable to the company? 3 Given the following four mutually exclusive alternatives each with economic lives of 20 years, each evaluated over a 20-year study period. MARR is 20%: Project A B D Initial Cost $20,000 $16,000 $22,000 $14,000 Expected $12,000 $7,500 $7,750 EOY1 $7,000 Additional increasing at 5% each Revenue year thereafter Expected $6,500 $2,800 $5,000 EOY1 $2,800 Annual Cost increasing at $100 each year thereafter IRR 27.28% 29.20% 18.52% 29.84% Use the incremental Investment Analysis Procedure to make a selection among the four alternatives. a. For each incremental analysis, show your cash flow diagram and determine the incremental PW at MARR as a proxy for incremental IRR. Your decision to accept or reject should be based on incremental IRR. b. Based on your analysis, which alternative would you recommend? Why, be specific. 20 points 4. You are seeking approval for the purchase of a new printing press. The new printing press is estimated to cost $70,000; sales tax is estimated to be $4,000; transportation and installation is estimated to be $5,000, and operator training is estimated to be $2,000. The new printing press will have an expected life of 20 years. After 20 years the press will be retired and its cost of removal will equal its salvage value. When placed in service, this new press is projected to produce additional annual revenues of $25,000 EOY 1 increasing by 5% each year thereafter over the its expected 20-year life. Overhead and maintenance expenses are estimated to be $2,500 EOY 1 increasing by $500 each year thereafter over its expected 20-year life. Your company's MARR is 25%. The study period is the same as the printing press' expected life. a. Show your cash flow diagram (neatness and detail count) b. What is the PW evaluated at MARR in dollars? (Show all your work). Given that the company cannot reinvest its revenues at a rate greater than MARR, what is the ERR (external rate of return) evaluated at E-MARR-25%? C. Model A BT Revenue BTCF BT Expenses Depreciation End of Year 0 1 Taxable Income Income Tax ATCF -$107,000 -$107.000 2 3 $60,000 $64,000 $68,000 $72,000 $76,000 $80,000 $10,000 $22,000 $22.440 $22,889 $23,347 $2,3814 $2,4290 4 5 6 6 b) What is the after-tax PW of Model A? 20 points 1. Futuristic Electric Vehicles is offering customers who can make an initial payment of $10,000 an opportunity to defer their first car payments for 12 months. The purchase price is $65,000 which includes all taxes and documentation fees. You make an initial payment of $10,000 and accept the dealer's finance plan to pay the balance of $55,000 monthly over a 5-year period following the initial 12-month deferral period. The nominal interest rate is 6% per year for all years and interest accrues monthly during the 12 months' deferral period. a. Draw the cash flow diagram from your perspective. b. What are your future monthly payments (months 13-72)? C. You would like to pay off your loan when you make your 36" payment. What will be the payoff for the loan including the 36 payment? 20 points 2. Your company purchases a new heavy-duty truck from a dealer in another town. The initial cost is $55,000, sales tax is $3,500, and the dealer charges $500 for delivery of the truck to your company. Maintenance will be provided by the dealer at no additional charge for the first 2 years. Future maintenance cost is estimated to be $2,000 beginning the EOY 3 increasing at $500 per year thereafter for EOY 4-10. At the end of 10 years the truck will be sold for its estimated value of $5,000. The additional revenues to the company due to the use of the new heavy-duty truck are estimated to be $15,000 EOY 1 and EOY 2. Your company's MARR is 25%. a. Draw the cash flow diagram from the company's perspective. b. What would be the minimum uniform annual revenue for EOY 3-10 for the purchase of the new truck to be profitable to the company? 3 Given the following four mutually exclusive alternatives each with economic lives of 20 years, each evaluated over a 20-year study period. MARR is 20%: Project A B D Initial Cost $20,000 $16,000 $22,000 $14,000 Expected $12,000 $7,500 $7,750 EOY1 $7,000 Additional increasing at 5% each Revenue year thereafter Expected $6,500 $2,800 $5,000 EOY1 $2,800 Annual Cost increasing at $100 each year thereafter IRR 27.28% 29.20% 18.52% 29.84% Use the incremental Investment Analysis Procedure to make a selection among the four alternatives. a. For each incremental analysis, show your cash flow diagram and determine the incremental PW at MARR as a proxy for incremental IRR. Your decision to accept or reject should be based on incremental IRR. b. Based on your analysis, which alternative would you recommend? Why, be specific. 20 points 4. You are seeking approval for the purchase of a new printing press. The new printing press is estimated to cost $70,000; sales tax is estimated to be $4,000; transportation and installation is estimated to be $5,000, and operator training is estimated to be $2,000. The new printing press will have an expected life of 20 years. After 20 years the press will be retired and its cost of removal will equal its salvage value. When placed in service, this new press is projected to produce additional annual revenues of $25,000 EOY 1 increasing by 5% each year thereafter over the its expected 20-year life. Overhead and maintenance expenses are estimated to be $2,500 EOY 1 increasing by $500 each year thereafter over its expected 20-year life. Your company's MARR is 25%. The study period is the same as the printing press' expected life. a. Show your cash flow diagram (neatness and detail count) b. What is the PW evaluated at MARR in dollars? (Show all your work). Given that the company cannot reinvest its revenues at a rate greater than MARR, what is the ERR (external rate of return) evaluated at E-MARR-25%? C. Model A BT Revenue BTCF BT Expenses Depreciation End of Year 0 1 Taxable Income Income Tax ATCF -$107,000 -$107.000 2 3 $60,000 $64,000 $68,000 $72,000 $76,000 $80,000 $10,000 $22,000 $22.440 $22,889 $23,347 $2,3814 $2,4290 4 5 6 6 b) What is the after-tax PW of Model A