A software developer is planning to develop, produce and sell new security software. The key parameter values of the three software packages under consideration are provided below.

AC: Initial Cost ($) 650,000, Revenues ($) 350,000 at EOY1 increasing by $4,000 annually thereafter, Operating costs ($) 180,000 at EOY1 increasing by 2% annually thereafter, End-of-life salvage value ($) 90,000, Useful life (years) 5

KLM: Initial Cost ($) 740,000, Revenues ($) 450,500 at EOY1 decreasing by $5,000 annually thereafter, Operating costs ($) 252,000 at EOY1 decreasing by 1% annually thereafter, End-of-life salvage value ($) 100,000, Useful life (years) 5

Delta: Initial Cost ($) 790,000, Revenues ($) 450,500 at EOY1 increasing by 1% annually to EOY5 inclusively; $470,000 at EOY6 decreasing annually by $2,000 thereafter, Operating costs ($) 300,000 at EOY1 increasing by 2% annually thereafter, End-of-life salvage value ($) 120,000, Useful life (years) 10

All parameter values are fictitious. EOY = End-of-year Industry standard for backhoes = 4 years MARR = 10%

Questions:

1. AC's Net Present Worth (NPW).

2. KLM's Net Future Worth (NFW) at EOY5.

3. Delta's NFW at EOY10.

4. AC's Annual Equivalent Worth (AEW).

5. Delta's AEW over 30 years (it was repeated without changes to its initial parameter values).

6. The best software model based on the net future worth (NFW) criterion.

7. The best software model based on the annual equivalent worth (AEW) criterion.

8. AC's recovery period (years) based on the simple payback method.

9. KLM's "project balance" after 2 years based on the simple payback method.

10. Is the KLM software model acceptable based on the discounted payback method? .

11. Delta's "project balance" at EOY3 based on the discounted payback method.

12. The best software model based on the simple payback method.

13. The best software model based on the discounted payback method.

14. KLM's benefit/cost (B/C) ratio.

15. Delta's benefit/cost (B/C) ratio.

16. The incremental B/C ratio between the AC and the KLM models.

17. The incremental B/C ratio between the KLM and the Delta models.

18. AC's Internal Rate of Return (IRR). 19. Delta's Internal Rate of Return (IRR).

20. The incremental Internal Rate of Return (IRR) between the AC and the Delta models.

21. KLM's External Rate of Return (ERR).

22. Delta's External Rate of Return (ERR).

23. The incremental External Rate of Return (ERR) between the AC and the KLM models.

24. The incremental External Rate of Return (ERR) between the AC and the Delta models.

25. The best software model based on the external rate of return (ERR) criterion.

26. If the company's current software development budget is $1.55 million, which software model(s) should it purchase assuming that the three software models are independent investments?

27. If the company prefers to develop two software models instead of one in 2020 (that is, one in September and the other in November), which model in Question 26 should it develop in September?

28. Isaac plans to make $500 deposits on January 31, February 28, March 31 and April 30 in 2021.Find the equivalent monthly deposit for calendar year 2021 if interest is 12% compounded monthly and the unequal number of days in a month is irrelevant. a) AEW=500(P/A,12%/12,4)(A/P,12%/12,12) b) AEW=500(P/A,12%,4)(A/P,12%,12) c) AEW=500(F/A,12%/12,4)(F/P,12%/12,8)(A/F,12%/12,12) d) Answers a) and c) are correct.

29. The nominal rate of interest compounded quarterly equivalent to a nominal rate of 24% compounded monthly.