Complete each problem in excel. Submit your excel worksheet in EXCEL format so I can see how you solved the problems.

Problem 1

It's time to upgrade and buy that McMansion you've been wanting.

The loan is for $421,000 and you are getting rate of 2.6% per year compounded monthly.

You have decided on a 15 year mortgage and will make monthly payments (end of the month).

To try and reduce the cost of the home, you plan to pay extra each month for 5 years by working extra hours and expect to pay an extra $801 per month to knock down the principle.

You make these EXTRA payments for 5 years. The FIRST extra payment will be on month 1. The last extra payment is on month 60.

Build the amortization table.

What month will you make your last payment?

How much will the last payment be?

Problem 2

You are trying to decide between two different machines on a project

There are two machines under consideration. They will provide the same function, but there are difference in cost, benefits, life and other details.

Costs, machine prices AND salvage all go up at the rate of inflation.

Costs and benefits are shown for year 1.

Benefits go up by the % given and are different for each machine.

Salvage costs are given for an 14 yr old machine A or a 7 yr old machine B TODAY. Adjust with inflation.

Help your employer to determine which machine is the best choice.

MARR 14.10%

Inflation 2.880%

Machine A Machine B

Initial Cost $12,500 Initial Cost $9,300

Salvage $6,100 14 yr old machine today Salvage $3,200 7 yr old machine today

Life 14 Years Life 7 Years

Benefits $7,100 Per year Benefits $6,800 Per year

Benefit inc 3.80% Benefits inc 4.40%

Costs $3,200 Per year Costs $2,900 Per year

5a. Create the net cash flow chart for both machines.

5b. Deterine the NPW for both machines.

5c. Determine the EUAW for both machines.

5d. Determine the NFW for both machines.

5e. Determine the IRR for both machines

5f. Detemine the DELTA IRR .

5g. Which machine will you select? Show the decision table for these alternatives.

5h. Graph the NPW versus MARR chart for both machines (both curves on the same graph)