everyone_ econ_eng
Umar
2000.xlsxSheet1
| Sami Almalki | ||||||||
| TECH 452 Economics Engineering | ||||||||
| NOV - 19 - 2012 | ||||||||
| Problem 7.4 | ||||||||
| Assume that you are going to buy a new car for $25,000.You will be able to make a down payment of | ||||||||
| $3,000.The remaining $22,000 will be financed by the dwaler.The dealer computes your monthlypayment | ||||||||
| to be $547.47 for48 months of financing. What is the dealer's annual rate of return on this car loan? | ||||||||
| $22,000=$547.47(P/A,I,48) | ||||||||
| i=0.75% | ||||||||
| r=0.75*12=9% | ||||||||
| i=(1+i)^-1 | ||||||||
| i=(1+0.0075)^12 - 1=9.38% per year | ||||||||
| Problem 7.11 | ||||||||
| Consider four projects with the following sequences of cash flows | ||||||||
| Net Cash Flow | ||||||||
| N | Project A | ProjectB | ProjectC | ProjectD | ||||
| 0 | ($25,000) | ($23,000) | $43,233 | ($56,600) | ||||
| 1 | $12,000 | $32,000 | ($18,000) | ($2,500) | ||||
| 2 | $23,000 | $32,000 | ($18,000) | ($6,459) | ||||
| 3 | $34,000 | ($25,000) | ($18,000) | $88,345 | ||||
| a) Identify all the simple investments. | ||||||||
| Simple investment: Project A,D project C Simple borrowing. | ||||||||
| b) Identify all the nonsimple investments | ||||||||
| Non- simple investment: Project B | ||||||||
| c) Comare the i* for each project using Exel. | ||||||||
| Project A: | ||||||||
| PW(I)=-$25,000+$12,000(P/F,I,1)+$$23,000(P/F,I,2)+$34,000(P/F,I,3)=0 | ||||||||
| i^=59.32% | ||||||||
| ProjectB: | ||||||||
| PW(I)=$23,000+$32,000(P/A,I,2)- $25,000(P/F,I,3)=0 | ||||||||
| I^=82.72% | ||||||||
| Project C: | ||||||||
| PW(I)=$43,233-$18,000(P/A,I,3)=0 | ||||||||
| I^=12% A=borrowing rate of return | ||||||||
| Project D: | ||||||||
| PW(I)= - $56,500 - $2,500(P/F,I,1) - $6,459(P/F,I,2)+$88,345(P/F,I,3)=0 | ||||||||
| I^=11.37% | ||||||||
| d) Which projet has no rate of return? | ||||||||
| The answer could be project C on the grounds that its cash flowrepresent a loan not an investment. | ||||||||
| Problem 7.20 | ||||||||
| Consider the following project’s cash flows: | ||||||||
| N | net cash flow | |||||||
| 0 | ($3,000) | |||||||
| 1 | $800 | |||||||
| 2 | $900 | |||||||
| 3 | x | |||||||
| Assume that the project's IRR is 10% | ||||||||
| (A) find the value of X | ||||||||
| PW(I)=P/F,I,N) | ||||||||
| PW(10%)= - $3,000+ $800(P/F,10%,1) + $9,000(P/F,10%,2)+ X (P/F,10%,3)=0 | ||||||||
| X= $2,035 | ||||||||
| (B) Is this porject acceptable at MARR=8%? | ||||||||
| Since IRR=8%, the project is acceptable. |
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