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Present Worth

A firm has installed a manufacturing line for packaging materials. The firm plans to produce 50 tons of packing peanuts at $5000 per ton annually for 5 years, and then 80 tons of packing peanuts per year at $5500 per ton for the next 5 years. What is the present worth of the expected income? The firms minimum attractive rate of return is 18% per year.

Present Worth

A consulting engineer has been hired to advise a town how best to proceed with the construction of a 200,000-m³ water supply reservoir. Since only 120,000-m³ of storage will be required for the next 25 years, an alternative to building the full capacity now is to build the reservoir in two stages. Initially the reservoir could be built with 120,000-m³ of capacity and then, 25 years hence, the additional 80,000-m³ of capacity could be added by increasing the height of the reservoir. If interest is computed at 4%, which construction plan is preferred?

	Construction Cost	Annual Maintenance Cost
Build in two stages: First stage: 120,000-m3 reservoir	$14,200,000	$75,000
Second stage: Add 80,000-m3 of capacity; additional construction and maintenance costs	$12,600,000	$25,000
Build full capacity now: 200,000-m3 reservoir	$22,400,000	$100,000

Present Worth

A factory has averaged the following monthly heating and cooling costs over the last 5 years. Calculate the PW at a nominal interest rate of 12%.

Month	Costs
January	$25,000
February	$19,000
March	$15,000
April	$9,000
May	$12,000
June	$18,000
July	$29,000
August	$33,000
September	$19,000
October	$8,000
November	$16,000
December	$28,000

Annual Cash Flow Analysis

Mr. Wiggley wants to buy a new house. It will cost $178,000. The bank will loan 90% of the purchase price at a nominal interest rate of 10.75% compounded weekly, and Mr. Wiggley will make monthly payments. What is the amount of the monthly payment if he intends to pay the house off in 25 years?

Annual Cash Flow Analysis

A 30-unit apartment building should last 35 years, when it will need to be either replaced or undergo major renovation. Assume the buildings value at 35 years will be 10% of its construction cost. Assume it will be sold, and the lands cost will be recovered in full.

Land: $3.2M

Building: $4.8M

Annual operating maintenance: $850,000

Annual property taxes and insurance (% of initial investment): 6%

Vacancy rate: 12%

If the owner wants a 15% rate of return, what is the required monthly leasing cost for each unit?

If turning 2 units into an exercise facility would decrease the vacancy rate by 5%, would that be a good decision?