FINANCIAL MANAGEMENT #4

BCN 3753 FINANCIAL MANAGEMENT OF CONSTRUCTION ORGANIZATIONS

Spring 2015 - Homework Assignment #4 (50 Points)

Due Date: March 24, 2015 – 5:00 PM

(**Note: The information provided in each problem is sufficient to solve the problem

independent of your answers to the other problems)

Important Submission Instructions:

1. In class students should submit homework assignments in class (hard copy). The answers to all the questions should be turned in together (stapled) – Only students

who are absent are allowed to submit their homework on Blackboard

2. For submissions on Blackboard (FEEDS students), the answers to all the questions should be saved and submitted in a SINGLE PDF file. Otherwise, the HW will not be

graded.

3. For this assignment, you are NOT ALLOWED to use Excel Spreadsheet for solving the problems.

1. Given cash flows for an investment of $5,800 at time 0, determine the IRR to the nearest

second decimal place. (25 points)

(Hint: Try 10% and 12% and Interpolate)

Year 0 1 2 3 4

Cash Flow -$5,800 $1,800 $1,800 $1,800 $2,000

2. Two hazardous environment facilities are being evaluated, with the projected life of each facility being 10 years. The cash flows are as follows:

Alternative A Alternative B

First cost $615,000 $300,000

Maintenance and operating cost $10,000 $25,000

Annual benefits $158,000 $92,000

Salvage value $65,000 -$5,000

The company uses a MARR of 15%. Using rate of return analysis, which alternative should be

selected? (Use incremental analysis) (25 points)