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Chapter 5
PROPRIETARY MATERIAL. The McGraw-Hill Companies, Inc. All rights reserved. No part of this Manual may be
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5.11
5.12
5.13
Chapter 5
PROPRIETARY MATERIAL. The McGraw-Hill Companies, Inc. All rights reserved. No part of this Manual may be
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5.14
5.15
5.16
5.17
Chapter 5
PROPRIETARY MATERIAL. The McGraw-Hill Companies, Inc. All rights reserved. No part of this Manual may be
displayed, reproduced or distributed in any form or by any means, without the prior written permission of the publisher, or used
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5.18
5.19
5.20
5.21
Chapter 5
PROPRIETARY MATERIAL. The McGraw-Hill Companies, Inc. All rights reserved. No part of this Manual may be
displayed, reproduced or distributed in any form or by any means, without the prior written permission of the publisher, or used
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5.22
CC = -400,000 400,000(A/F,6%,2)/0.06
= -400,000 400,000(0.48544)/0.06
=$-3,636,267
5.23
CC = -1,700,000 350,000(A/F,6%,3)/0.06
= - 1,700,000 350,000(0.31411)/0.06
= $-3,532,308
5.24
5.25
5.26
5.27
5.28
Chapter 5
PROPRIETARY MATERIAL. The McGraw-Hill Companies, Inc. All rights reserved. No part of this Manual may be
displayed, reproduced or distributed in any form or by any means, without the prior written permission of the publisher, or used
beyond the limited distribution to teachers and educators permitted by McGraw-Hill for their individual course preparation. If you are
a student using this Manual, you are using it without permission.
5.29
5.30
5.31
CC = 100,000 + 100,000/0.08
= $1,350,000
5.32
PROPRIETARY MATERIAL. The McGraw-Hill Companies, Inc. All rights reserved. No part of this Manual may be
displayed, reproduced or distributed in any form or by any means, without the prior written permission of the publisher, or used
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5.34
5.35
The alternatives that have large cash flows beyond the date where other
alternatives recover their investment might actually be more attractive over the
entire lives of the alternatives (based on PW, AW, or other evaluation methods).
5.38
5.39
5.40
PROPRIETARY MATERIAL. The McGraw-Hill Companies, Inc. All rights reserved. No part of this Manual may be
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Select A
PW for 10 yrs: Alt A: PW = -300,000 + 60,000(P/A,8%,10)
= - 300,000 + 60,000(6.7101)
= $102,606
Alt B: PW = -300,000 + 10,000(P/A,8%,10) + 15,000(P/G,8%,10)
= -300,000 + 10,000(6.7101) + 15,000(25.9768)
= $156,753
Select B
Income for Alt B increases rapidly in later years, which is not accounted for in
payback analysis.
5.42 LCC = -6.6 3.5(P/F,7%,1) 2.5(P/F,7%,2) 9.1(P/F,7%,3) 18.6(P/F,7%,4)
- 21.6(P/F,7%,5) - 17(P/A,7%,5)(P/F,7%,5) 14.2(P/A,7%,10)(P/F,7%,10)
- 2.7(P/A,7%,3)(P/F,7%,17)
= -6.6 3.5(0.9346) 2.5(0.8734) 9.1(0.8163) 18.6(0.7629) - 21.6(0.7130)
- 17(4.1002)(0.7130) 14.2(7.0236)(0.5083) - 2.7(2.6243)(0.3166)
= $-151,710,860
5.43 LCC = 2.6(P/F,6%,1) 2.0(P/F,6%,2) 7.5(P/F,6%,3) 10.0(P/F,6%,4)
-6.3(P/F,6%,5) 1.36(P/A,6%,15)(P/F,6%,5) -3.0(P/F,6%,10)
- 3.7(P/F,6%,18)
= 2.6(0.9434) 2.0(0.8900) 7.5(0.8396) 10.0(0.7921) -6.3(0.7473)
1.36(9.7122)(0.7473) -3.0(0.5584) - 3.7(0.3503)
= $-36,000,921
5.44 LCCA = -750,000 (6000 + 2000)(P/A,0.5%,240) 150,000[(P/F,0.5%,60)
+ (P/F,0.5%,120) + (P/F,0.5%,180)]
= -750,000 (8000)(139.5808) 150,000[(0.7414) + (0.5496) + (0.4075)]
= $-2,121,421
LCCB = -1.1 (3000 + 1000)(P/A,0.5%,240)
= -1.1 (4000)(139.5808)
= $-1,658,323
Select proposal B.
5.45 LCCA = -250,000 150,000(P/A,8%,4) 45,000 35,000(P/A,8%,2)
-50,000(P/A,8%,10) 30,000(P/A,8%,5)
= -250,000 150,000(3.3121) 45,000 35,000(1.7833)
-50,000(6.7101) 30,000(3.9927)
= $-1,309,517
Chapter 5
PROPRIETARY MATERIAL. The McGraw-Hill Companies, Inc. All rights reserved. No part of this Manual may be
displayed, reproduced or distributed in any form or by any means, without the prior written permission of the publisher, or used
beyond the limited distribution to teachers and educators permitted by McGraw-Hill for their individual course preparation. If you are
a student using this Manual, you are using it without permission.
I = (V)(0.07)/2
201,000,000 = I(P/A,4%,60) + V(P/F,4%,60)
Try V = 226,000,000: 201,000,000 > 200,444,485
Try V = 227,000,000: 201,000,000 < 201,331,408
Chapter 5
PROPRIETARY MATERIAL. The McGraw-Hill Companies, Inc. All rights reserved. No part of this Manual may be
displayed, reproduced or distributed in any form or by any means, without the prior written permission of the publisher, or used
beyond the limited distribution to teachers and educators permitted by McGraw-Hill for their individual course preparation. If you are
a student using this Manual, you are using it without permission.
By interpolation, V = $226,626,340
5.53 (a) I = (50,000)(0.12)/4
= $1500
Five years from now there will be 15(4) = 60 payments left. PW5 then is:
PW5 = 1500(P/A,2%,60) + 50,000(P/F,2%,60)
= 1500(34.7609) + 50,000(0.3048)
= $67,381
(b) Total = 1500(F/A,3%,20) + 67,381
= 1500(26.8704) + 67,381
= $107,687
FE Review Solutions
5.54 Answer is (b)
5.55 PW = 50,000 + 10,000(P/A,10%,15) + [20,000/0.10](P/F,10%,15)
= $173,941
Answer is (c)
5.56 CC = [40,000/0.10](P/F,10%,4)
= $273,200
Answer is (c)
5.57 CC = [50,000/0.10](P/F,10%,20)(A/F,10%,10)
= $4662.33
Answer is (b)
5.58 PWX = -66,000 10,000(P/A,10%,6) + 10,000(P/F,10%,6)
= -66,000 10,000(4.3553) + 10,000(0.5645)
= $-103,908
Answer is (c)
5.59 PWY = -46,000 15,000(P/A,10%,6) - 22,000(P/F,10%,3) + 24,000(P/F,10%,6)
= -46,000 15,000(4.3553) - 22,000(0.7513) + 24,000(0.5645)
= $-114,310
Answer is (d)
5.60 CCX = [-66,000(A/P,10%,6) 10,000 + 10,000(A/F,10%,6)]/0.10
= [-66,000(0.22961) 10,000 + 10,000(0.12961)]/0.10
= $-238,582
Answer is (d)
Chapter 5
10
PROPRIETARY MATERIAL. The McGraw-Hill Companies, Inc. All rights reserved. No part of this Manual may be
displayed, reproduced or distributed in any form or by any means, without the prior written permission of the publisher, or used
beyond the limited distribution to teachers and educators permitted by McGraw-Hill for their individual course preparation. If you are
a student using this Manual, you are using it without permission.
5.61 CC = -10,000(A/P,10%,5)/0.10
= -10,000(0.26380)/0.10
= $-26,380
Answer is (b)
5.62 Answer is (c)
5.63 Answer is (b)
5.64 Answer is (a)
5.65 Answer is (b)
Chapter 5
11
PROPRIETARY MATERIAL. The McGraw-Hill Companies, Inc. All rights reserved. No part of this Manual may be
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beyond the limited distribution to teachers and educators permitted by McGraw-Hill for their individual course preparation. If you are
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Chapter 5
12
PROPRIETARY MATERIAL. The McGraw-Hill Companies, Inc. All rights reserved. No part of this Manual may be
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beyond the limited distribution to teachers and educators permitted by McGraw-Hill for their individual course preparation. If you are
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Question 2:
Chapter 5
13
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115.83
(2.1 + 2.1) (12) (5)
This is still far below the citys cost of $1.10/1000 gallons. Therefore,
the success of the program is not sensitive to the percentage of cost rebated.
(b) Use the same relation for cost/month as in question 3 above, except with varying
interest rates, the values shown in the table below are obtained for n = 5 years.
Chapter 5
14
PROPRIETARY MATERIAL. The McGraw-Hill Companies, Inc. All rights reserved. No part of this Manual may be
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beyond the limited distribution to teachers and educators permitted by McGraw-Hill for their individual course preparation. If you are
a student using this Manual, you are using it without permission.
Interest Rate, %
$ / CCF
$/1000 gal
4
0.3
3
0.4
5
6
0.35
8
0.37
10
0.39
12
0.40
15
0.43
0.47
0.49
0.51
0.54
0.58
The results indicate that even at an interest rate of 15% per year, the cost at
$0.58/1000 gallons is significantly below the citys cost of $1.10/1000 gallons.
Therefore, the programs success is not sensitive to interest rates.
(c) Use the same equation as in question 3 above with i = 0.5% per month and
varying life values.
Life, years
$ / CCF
$/1000 gal
2
0.8
0
1.0
7
3
0.55
4
0.43
5
0.35
6
0.30
0.74
0.57
0.47
0.40
8
0.2
4
0.3
2
10
0.20
15
0.15
20
0.13
0.27
0.20
0.17
For a 2-year life and an interest rate of a nominal 6% per year, compounded
monthly, the cost of the program is $1.07/1000 gallons, which is very close to the
savings of $1.10/1000 gallons. But the cost decreases rapidly as life increases.
If further sensitivity analysis is performed, the following results are obtained. At
an interest rate of 8% per year, the costs and savings are equal. Above 8% per
year, the program would not be cost effective for a 2-year toilet life at the 75%
rebate level. When the rebate is increased to 100%, the cost of the program
exceeds the savings at all interest rates above 4.5% per year for a toilet life of 3
years.
These calculations reveal that at very short toilet lives (2-3 years), there are some
conditions under which the program will not be financially successful. Therefore,
it can be concluded that the programs success is mildly sensitive to toilet life.
Chapter 5
15
PROPRIETARY MATERIAL. The McGraw-Hill Companies, Inc. All rights reserved. No part of this Manual may be
displayed, reproduced or distributed in any form or by any means, without the prior written permission of the publisher, or used
beyond the limited distribution to teachers and educators permitted by McGraw-Hill for their individual course preparation. If you are
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