1. (a) A brass pump and a stainless-steel pump are being compared for an application in which their operating costs will be the same. The firm uses an interest rate of 15%. The brass pump lasts 3 years and costs $12,000 while the stainless-steel pump lasts 4 years and costs $15,000. Neither will have a salvage value. Required: Compare each alternative's present worth (i) With a 12-year horizon. (ii) With an infinite horizon. (b) Compare the two pumps over 3, 4, and 5 years if it is assumed that the residual values for the brass pump is $6000, $2000, and $0 after 1, 2, and 3 years of use respectively while that for the stainless-steel pump are $9000, $4500, $1500, and $0 after 1, 2, 3, and 4 years of use respectively. Comment on your results.
2. The communications system for conglomerate Engineering costs $50,000 four years ago. Its current salvage value is $26,000, which will decline as follows over the next 4 years: $20,000, $16,250, $14,000 and $12,500. The O & M costs will be $6,000 this year, and these costs will increase by $2,000 per year. At Conglomerate's interest rate of 10%, the best challenger has an EAC of $14,200. When should the communications system be replace?
3. A university currently facing a severe parking shortage on campus, is considering constructing parking decks off campus. A shuttle service composed of minibuses could pick up students at the off-campus parking deck and quickly transport them to various locations on campus. The university would charge a small fee for each shuttle ride, and the students could be quickly and economically transported to the classes. The funds raised by the shuttle would be used to pay for minibuses, which cost about $150,000 each. Each minibus has a 12-year service life, with an estimated salvage of $3,000. To operate each minibus, the following additional expenses must be considered. Driver $40000, Maintenance $7,000 and Insurance $2,000. If students pay 10 cents for each ride, determine the annual ridership required to justify the shuttle project, assuming an interest rate of 6%.