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Problems APTER 5 Pre Worth Analysis s in Ne PS. Z of which have a four year 57 Consider the investment TABLE P5.7 Pet Cash Flow (5) net amount of $50.000 at the end of the 25 year period. If you had the opportunity to invest your money elsewhere and thereby earn interest at the rate of 12 what would be the maximum amount you would be willing to pay for the building and lot at the present time! 511 Consider the following set of investment projects, all of which have a three-year invest ment life Project Cash Flows # AD 10 -3200 -$1.00 $1,400 -55.500 1 5 0 $800 -5750 $1,100 2 $0 1,000 5650 2.600 3 $200 $1,400 $2.250 2.500 I 2 S O 2 $0 56.300 1400 .00 100 2.200 -SINO - $0 $4.500 $4500 -$1,000 $1,900 $2.00 1.500 (a) What is the pasback period of each project! (b) What is the discounted pack period at an interest rate of 15% for each project NPW Criterion 58 Lance Manufacturing is considering punchasing a new injection-holding machine for $300,000 to expand its production capacity. It will cost an additional SS2,000 to do the site preparation. With the new injection molding machine installed, Larson Manufacturing expects to increase its revenue by $70,000. The machine will be used for six years with an expected salvage value of $61.000. At an interest rate of 10%, would the purchase of the injection-molding machine be justified? 59 Consider the cash flows from an investment project (a) Compute the nel present worth of each project at 8%. (b) Plot the present worth as a function of the interest rate from 0% to 30%) for Project 5.12 Belo Cais a manufacturer of mini-doughnut machine makers Fath in 2018 a customer anked Below to quote a price for a custom designed doughnut machine to be delivered by the end of 2018. Once it is purchased, the customer intends to place the machine in service in January 2019 and will use it for four years. The expected annual operating net cash flow is estimated to be S1 . The expected salvage value of the equipment at the end of five years is about 12% of the initial purchase price. To expect an 18% required rate of return on investment, what is the maximum amount that should be spent on purchasing the doughnut machine? 5.13 You are considering the purchase of a parking deck close to your office building. The park ing deck is a 15-year old structure with an estimated remaining service life of 25 years. The tenants have recently signed long-term leases which leads you to believe that the current rental income of $250.000 per year will remain constant for the first five years. Then the rental income will increase by 10% for every five-year interval over the remaining asset life. Thus, the annual rental income would be $275.000 for years through 10, $300.500 for year 11 through 15 $332,750 for years to through 20, and 5.166,025 for years 21 through 25. You estimate that operating expenses including income taxes, will be $65.000 for the first year and that they will increase by $6,000 each year thereafter. You estimate that ring the building and selling the lot on which it stands will realize a net amount of $200,000 at the end of the 25-year period. If you had the opportunity to invest your money elsewhere and thereby earn interest at the rate of 15% per annum, what would be the maximum amount you would be willing to pay for the parking deck and lot at the present time? 5.14 Consider the following investment project: New Collows $22.400 DO 536,250 538 540 (a) Compute the act present worth of the project 15%. 6) Plot the present worth as a function of the interest rate (troen 0% to 30 h 510 Your firm is considering purchasing and a nd ng service We of 25 yan Recent the latened a long term as which leads you to believe that the total income of $250.000 per y e n constant for the fire y Then the real income will incre 10% for every year in the remains of the act. That is na SVIDEO 11 through 15. so for you to 21und es for years 21 h Yo me pages, including inometnes will be the first year and that they will increase by each year bercafer. You me g the building and selling deb t s will reale ISO 10% SO 14% 51300 11 S100 105 Problems 237 of $50,000 at the end of the 25-year period. If you had the opp where and thereby earn interest at the rate of 12% per annum, what would be amount you would be willing to pay for the building and lot at the present tim be following set of investment projects, all of which have a three-year invest your money elsewhere and the maximum amount you 511 Consider the followin ment life: 0 -sor 0 1 2 3 Project Cash Flows A B co -5900 -$1,600 -$1,400 -$5.500 $0 $800 -5750 $1.100 SO $1,000 $680 $2,600 $2.400 1.400 $2,250 $2,800 (a) Compute the nel present worth of each project at i = 8%. (b) Plot the present worth as a function of the interest rate (from 0% to 30%) for Project B. Reloit Co is a manufacturer of mini-doughnut machine makers Early in 2018 a customer asked Beloit to quote a price for a custom-designed doughnut machine to be delivered by the end of 2018. Once it is purchased, the customer intends to place the machine in service in January 2019 and will use it for four years. The expected annual operating net cash flow is estimated to be $140,000. The expected salvage value of the equipment at the end of five years is about 12% of the initial purchase price. To expect an 18% required rate of return on investment, what is the maximum amount that should be spent on purchasing the doughnut machine? 5.13 You are considering the purchase of a parking deck close to your office building. The park. ing deck is a 15-year old structure with an estimated remaining service life of 25 years. The tenants have recently signed long-term leases, which leads you to believe that the current rental income of $250,000 per year will remain constant for the first five years. Then the rental income will increase by 10% for every five-year interval over the remaining asset life. Thus, the annual rental income would be $275,000 for years 6 through 10, $302,500 for years 11 through 15. $332,750 for years 16 through 20 and $366,025 for years 21 through 25 You estimate that operating expenses, including income taxes will be $65,000 for the first year and that they will increase by $6,000 each year thereafter. You estimate that razine the building and selling the lot on which it stands will realize a net amount of $200,000 at the end of the 25-year period. If you had the opportunity to invest your money elsewhere and thereby earn interest at the rate of 15% per annum, what would be the maximum amount you would be willing to pay for the parking deck and lot at the present time? 5.14 Consider the following investment project: 0 -56,400 $4,800 $4,400 $1,800 $3.200 $5.100 8% 10% 12% 14% 11% 10% 4 5
