Answer all of the following 5 questions and show all the works in detail.

Question #1

Given the financial data for three mutually exclusive alternatives in the table below. Determine the best alternative using the annual cash flow analysis.

	X	Y	Z
First cost	$50,000	$30,000	$25,000
O &M Cost/ year	12,000	5,000	2,400
Benefit/year	18,000	13,000	9,000
Salvage value	3,000	6,000	4,600
Life in years	6
Interest Rate	7%

Question #2

A pump is needed for 12 years at a remote location. The pump can be driven by an electric motor if a power line is extended to the site. Otherwise, a gasoline engine will be used. Use an annual cash flow analysis and 8% interest rate. How should the pump be powered?

	Electric	Gasoline
First Cost	$8000	$2300
Annual Operating Cost	240	1000
Annual maintenance	150	500
Salvage value	600	300
Life, in years	12	6

Question #3

The manager in a canned food processing plant is trying to decide between two labeling machines.

	Machine L	Machine V
First Cost	$18,000	$28,000
M and O Cost	1,800	700
Annual benefit	5,000	10,000
Salvage value	1,000	2,000
Life, in years	7	11

Assume an interest rate of 5.5%. Use annual cash flow analysis to determine which machine should

be chosen.

Question #4

You are interested in leasing a new car for 39 months.

• The value of the car is $52,000
• You must pay $7000 at signing, which does not include the first months lease payment.
• The monthly lease cost for the car is $675 for 39 months.
• At the end of the lease, you will need to pay a lease termination fee for $2500.
• The interest rate for this type of the car is 2.5% APR.

Calculate the present worth of leasing the car.

Question #5

A student loan totals $40,000 at graduation. The interest rate is 6%, and there will be 72 payments

beginning 1 month after graduation. What is the monthly payment? What is owed after the first 3

years of payments?

Question #6

An office building should last 60 years, but his owner will sell it at 20 years for 40% of its

construction cost. For the first 20 years it can be leased as class A space, which is all this owner

operates. When the building is sold, the lands cost will be recovered in full.

Land S2.5M

Building $4.0M

Annual Operating and Maintenance $540,000

Annual Property taxes and insurance 4.5%

(% of initial investment)

1. If the owner wants a 10% rate of return, what is the required monthly leasing cost?
2. Assuming that the building is vacant 5% of the time, what is the required monthly lease?