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    Homework 3 Egr Oumaima

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    oumaidi123
    The best alternative is to select Alternative B based on the annual worth analysis for a 5 year contract period.

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    Homework 3 Egr Oumaima

    Uploaded by

    oumaidi123
    17 views6 pages
    The best alternative is to select Alternative B based on the annual worth analysis for a 5 year contract period.

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    © © All Rights Reserved

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    The best alternative is to select Alternative B based on the annual worth analysis for a 5 year contract period.

    Copyright:

    © All Rights Reserved
    Download as DOCX, PDF, TXT or read online from Scribd
    Download as docx, pdf, or txt
    17 views6 pages

    Homework 3 Egr Oumaima

    Uploaded by

    oumaidi123
    The best alternative is to select Alternative B based on the annual worth analysis for a 5 year contract period.

    Copyright:

    © All Rights Reserved
    Download as DOCX, PDF, TXT or read online from Scribd
    Download as docx, pdf, or txt
    of 6

    Part I - Practice (Total 75 points):

    Exercise 1 (10pts):

    A company that makes food-friendly silicone is considering all viable alternatives in the table, all
    of which can be considered to be viable for only 10 years. If the company’s MARR is 8% per year,
    compounded semiannually, answer the following for financial values in $1000 units:

    a: The following alternatives are independent because the choice of one alternative does not
    affect the choice of others. Each alternative can be evaluated on its own without any
    restriction based on others.
    b: The project is a revenue base because the alternatives generates an income (Annual
    income).
    c: Determine which alternatives should be selected on the basis of present worth analysis
    i=8 % per year , compounded semiannually

     IP=1 year
    PP 12
     CP=6 months m= = =2
    CP 6
     PP=1 year
    2
    0.08
    i pp=(1+ ) −1=8.16 % per year ,Compounded yearly
    2
     PW A =−1200+200(P / A ,8.16 % , 10)+5 (P/ F , 8.16 % ,10)
    PW A =−1200+200 ( 6.6619 ) +5(0.4563)

    PW A =$ 134 661 Accepted

     PW B =−20 0 0+ 4 00(P / A ,8.16 % , 10)+6 (P/ F , 8.16 % ,10)


    PW B =−200 0+ 4 00 ( 6.6619 ) +6 (0.4563)

    PW B =$ 667 400 Accepted

     PW C =−5 000+ 1100(P/ A , 8.16 % ,10)+8(P /F , 8.16 % , 10)


    PW B =−5000+1100 ( 6.6619 )+ 8(0.4563)

    PW B =$ 2331 740 Accepted

     PW D=−7 000+ 13 00(P/ A , 8.16 % ,10)+7(P /F , 8.16 % , 10)


    PW B =−7000+1300 ( 6.6619 ) +7 (0.4563)

    PW B =$ 1663 664 Accepted

    The alternatives that should be selected are A, B, C and D.


    d. Determine which alternatives should be selected on the basis of annual worth analysis.
     AW A =−1200( A /P ,8.16 % , 10)+200+ 5(P/ F , 8.16 % ,10)( A /P , 8.16 % ,10)
    AW A =−1200(0.1501)+200+5 (0.4563)(0.1501)
    AW A =$ 20 220 Ac ce pted
     AW B=−200 0( A / P ,8.16 % , 10)+ 4 00+ 6( P/ F ,8.16 % , 10)( A / P ,8.16 % , 10)
    AW B=−200 0(0.1501)+ 4 00+6 (0.4563)(0.1501)
    AW B=$ 100 210 Ac ce pted
     AW C =−5 00 0( A/ P , 8.16 % , 10)+1100+8 (P/ F , 8.16 % ,10)( A /P , 8.16 % ,10)
    AW C =−5 00 0(0.1501)+ 1100+8(0.4563)(0.1501)
    AW C =$ 350 040 Ac ce pted
     AW D=−7 00 0( A/ P , 8.16 % ,10)+1 300 +7(P/ F ,8.16 % , 10)(A / P , 8.16 % , 10)
    AW D=−7 00 0(0.1501)+ 13 00+7 (0.4563)(0.1501)
    AW D=$ 249 700 Ac ce pted
    The alternatives that should be selected are A, B, C and D.
    Exercise 2 (10pts):

    Alternative A B C
    First Cost, $ -40 000 -80 000 -130,000
    Operating Cost
    9000 6000 4000
    Salvage, $ ----------- --------- 13000
    Service life 2 4 8
    a. Future Worth :

    FW A =−40 000 (F/ P , 10 % , 8)−9000 (F / A , 10 % ,8)−40 000(F / P ,10 % , 6)−40 000 (F/ P , 10 %
    FW A =−40 000 ( 2 .1436 )−9000 ( 11.4359 )−40 000 ( 1.7716 )−40 000 ( 1.4641 )−40 000 (1.2100 )
    FW A =$−366 495
     FW B =−8 0 000 ( F /P , 10 % , 8 )−9000 ( F / A ,10 % ,8 )−8 0 000 ( F /P , 10 % , 4 )

    FW B =FW A =−40 000 ( 2.1436 )−9000 ( 11.4359 )−8 0 000 ( 1.4641 )


    FW B =$−391 539
     FW C =−13 0 000 ( F / P ,10 % , 8 )−4 000 ( F / A , 10 % ,8 )+ 13000
    FW C =−13 0 000 ( 2.1436 )−4 000 ( 11.4359 ) +13000
    FW C =$−245 924
    The best alternative is C
    b. Present Worth :
     PW A =−40 000−9000(P / A ,10 % , 8)−40000 ¿
    PW A =−40 000−9000(5.3349)−40000(0.8264)−40000(0.6830)(0.8264)−40000(0.5645)(0.6830)
    PW A =$−159 889
     PW B =−80000−6000(P/ A , 10 % , 8)−80000 (P/ F , 10 % , 4)

    PW B =−80000−6000(5.3349)−80000 (0.6830)
    PW B =$−166 649

     PW C =−130 000−4000 (P/ A , 10 % , 8)−13000(P /F ,10 % , 8)

    PW C =−130 000−4 000(5.3349)−130 00 (0.4665)


    PW C =$−157 404.1

    The best alternative is C

    Exercise 3 (10pts) :

    i=1 %per month , compounded yearly


    IP=1 month
    CP=1 year
    PP=1 year

    So r =1× 12=12 % per year , compounded yearly

    a. Capitalized cost:
     PW X =−200 000−60000(P/ A , 12 % , 5)+20000 (P/ F , 12 % , 5)
    PW X =−200 000−60000(3.6048)+20000(0.5674 )
    PW X =$−404 940
    10000
     CC =−80 000−
    0.12
    CC =$−883 333
    b. Annual Worth:
     AW X =−200 000( A / P ,12 % ,5)−60 000+ 20 000( A /F ,12 % ,5)
    AW X =−200 000(0.27741)−60 000+20 000(0.15741)
    AW X =$−112 334

     AW Y =−800 000 ( 0.12 )−10 000


    AW Y =$−106 000

    Exercise 4 (10pts) :


    AW L=−150 000( A/ P , 10 % , 4 )−95 000+25 000 ( P/ F , 10 % , 4 )(A / P ,10 % , 4)
    AW L=−150 000(0.31547)−95 000+25 000(1.4641)(0.31547)
    AW L=$−130 773

     A W I =−900 000( A/ P , 10 % , 6)−60 000+300 000 ( A/ F ,10 % ,6)

    AW I =−90 0 000 (0.22961)−60 000+300 000(0.12961)


    AW I =$−227 757

     AW C =$−140 000

    The best alternative is C


    P W L=−15 0 000−95 000(P / A ,10 % ,12)+25 000(P /F ,10 % , 4)−150 000(P/ F , 10 % , 4)−150 0
    P W L=−15 0 000−95 000(6.8137)+ 25 000()−150 000()−150 000()()+25 000()+25 000(0.31
    P W L=$−¿

    P W I =−900 000−60 000(P / A , 10 % ,12)+300 000(P/ F ,10 % ,6)−900 000(P /F ,10 % , 6)+300 0
    P W I =−900 000−60 000(6.8137)+300 000 (0.5645)−900 000 (0.5645)+ 300 000(0.3186)
    PW I =$−1 551 942
     P W C =−140 000 (P/ A , 10 % , 12)
    P W C =−140 000 (6.8137)
    P W C =$−953 918

    The best alternative is C

    Exercise 5 (10pts) :

    AW A : Development =−250 000 (A / P , 8 % , 10)−150 000(P / A , 8 % , 4)( A /P , 8 % ,10)

    AW A : Development =−250 000 (0.1490)−150 000(3.3121)(0.1490)


    AW A : Development =$−111275

    AW A : Programming=−45 000( A / P ,8 % ,10)−35 000( P/ A , 8 % , 2)(A / P , 8 % , 10)

    AW A : Programming=−45 000 ( 0.1490 ) −35 000 (1.7833 )( 0.1490 )

    AW A : Programming=$−16 005

    AW A :Operation =$−50 000

    AW A :Support =−30 000 ( P/ A , 8 % , 5 ) ( A /P , 8 % ,10)

    AW A :Support =−30 000 ( 3.9927 ) (0.1490)

    AW A :Support =$−17 847

    AW A :total=−111 275−16 005−50 000−17 847

     AW A :total =−195 127


     AW B : Development =−1 0 000 ( A /P , 8 % , 10 )

    AW B : Development =−1 0 000(0.1490)


    AW B : Development =$−1490

     AW B : Programming =−4 5 000 (A / P , 8 % , 10)−3 0 000(P / A , 8 % ,3)( A /P , 8 % ,10)

    AW B : Programming =−45 000( 0.1490)−30 000(2.577)(0.1490)


    AW B : Programming =$−18 228

     AW B :Operating =$−80 000


     AW B : support =$−4 0 000
     AW B :total=−1490−1 8 228−8 0 000−40 000

     AW A :total =−1 39 718


     AW c : Operating=$−175 000
     The best alternative is the second one which is Alternative B( Adapted System)

    Exercise 6(10pts) :

    i=0.5 % per mont h , compounded mont hly

     IP=1 month
     CP=1 month r=0.5∗12=6 %
     PP=1 year
    12
    0.0 6
    i pp=(1+ ) −1=6 .16 % per year , Compounded yearly
    12
    a. What is your recommendation if the contract will last 5 years? (10pts)

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