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**SOLUTIONS TO SELECTED PROBLEMS
**

Student: You should work the problem completely before referring to the solution.

CHAPTER 1

Solutions included for problems 1, 4, 7, 10, 13, 16, 19, 22, 25, 28, 31, 34, 37, 40,

43, 46, and 49

1.1 Time value of money means that there is a certain worth in having money and the

worth changes as a function of time.

1.4 Nearest, tastiest, quickest, classiest, most scenic, etc

1.7 Minimum attractive rate of return is the lowest rate of return (interest rate) that

companies or individuals consider to be high enough to induce them to invest their

money.

1.10 Rate of increase = [(29 – 22)/22]*100 = 31.8%

1.13 Profit = 8 million*0.28 = $2,240,000

1.16 (a) Equivalent future amount = 10,000 + 10,000(0.08)

= 10,000(1 + 0.08)

= $10,800

(b) Equivalent past amount: P + 0.08P = 10,000

1.08P = 10,000

P = $9259.26

1.19 80,000 + 80,000(i) = 100,000

i = 25%

1.22 Simple: 1,000,000 = 500,000 + 500,000(i)(5)

i = 20% per year simple

Compound: 1,000,000 = 500,000(1 + i)5

(1 + i)5 = 2.0000

(1 + i) = (2.0000)0.2

i = 14.87%

**1.25 Plan 1: Interest paid each year = 400,000(0.10)
**

= $40,000

Chapter 1

1

**Total paid = 40,000(3) + 400,000
**

= $520,000

Plan 2: Total due after 3 years = 400,000(1 + 0.10)3

= $532,400

Difference paid = 532,400 – 520,000

= $12,400

1.28 (a) FV(i%,n,A,P) finds the future value, F

(b) IRR(first_cell:last_cell) finds the compound interest rate, i

(c) PMT(i%,n,P,F) finds the equal periodic payment, A

(d) PV(i%,n,A,F) finds the present value, P.

1.31 For built-in Excel functions, a parameter that does not apply can be left blank when

it is not an interior one. For example, if there is no F involved when using the PMT

function to solve a particular problem, it can be left blank because it is an end

function. When the function involved is an interior one (like P in the PMT

function), a comma must be put in its position.

1.34 Highest to lowest rate of return is as follows: Credit card, bank loan to new

business, corporate bond, government bond, interest on checking account

1.37 End of period convention means that the cash flows are assumed to have occurred

at the end of the period in which they took place.

1.40 The cash flow diagram is:

P=?

i = 15%

0 1

2

3

4

5

$40,000

1.43 4 = 72/i

i = 18% per year

1.46 2P = P + P(0.05)(n)

n = 20

Answer is (d)

1.49 Answer is (c)

Chapter 1

2

6355) = $381.10)(P/F.0007 = 0.415 2.8%25) = 6.8364.6) = 162.8(A/P.4) = 600.SOLUTIONS TO SELECTED PROBLEMS Student: You should work the problem completely before referring to the solution.10)(P/F.000(P/A.35) = 2000(11.33) = 0.6806) = $141.15) = 0.20) = 61.000(3. 43. CHAPTER 2 Solutions included for problems 1. 37.15%. 4.12%.2) = 75(0. (F/A.05(0.18%.814 2.25 (a) 1.0007 (P/F. 73. (A/P. 49.13 P = 1. 31.309 2.000(0.865 million 2.193 2.8%.7770. 46.25(0.6546) = $23.3522) = $251. 19. 64.3%. 13. 22.4 P = 600.0050 – 0.0014 x = 0. Interpolate between n = 32 and n = 34: 1/2 = x/0.18%. 76.8485.5(0. 67.12%. and 82 2.300 2. 79.8) = 7. 25.5) = 0.7182) = $53. (P/A.8%. 52. 70. (F/P. 55.8(0.19 P = 75.069 2.30598 2.000(0. 40.0043 Chapter 2 1 . 7.12%.9%.000(P/F.8573) + 0. 5.30%.7 P = 75(P/F. 2.0197. 10.8%.5) = 75.5066) = $82.22 P = 2000(P/A.18) = 75.2) + 0. 58.000(P/F. 28.15%.1 1. 16.125(0. 61.24323) = $437.10 P = 162. 4. 3. (P/G. 34.16 A = 1.6) = 1.

15)7}]}/(0.04)] = $86.1597 + 0.12%.12%.000 (b) A = 280. (A/G.182 2.0654 x = 0.37 50 = 6(P/A.270 2. (P/F.12%.40 For g = i.000 – 2(50.18%.1818] = $18.000) = $180.43 First find P and then convert to F: P = 2000{1 – [(1+0.54) = 8.000 – 50. Interpolate between n = 50 and n = 55: 4/5 = x/0.538 2.28 (a) G = $5 million (b) CF6 = $6030 million (c) n = 12 2.05232 = 8.10)7/(1+0.622 2.05232 (A/G.12%.33) = 1/(1+0.696(2.4) = 14.12%.49 Simple: Total interest = (0.000 + 1500(A/G.836.000(0.2143 2.8 = (1 + i)15 Chapter 2 2 .12) – 54/[(1+0.000 – 50.10)] = 1000[18.7746) = $191.038 2.0042 2.1)[15/(1 + 0.15%.2.7) = 10.12)54 –1} = 8.1114) + G(8.46 g = i: P = 1000[20/(1 + 0.452 2.000 + 1500(1.9302) G = $2.2120 (b) 1.696 F = 10.000(A/G.000(1.6600) = $28.15 – 0.696(F/P.31 (a) CF3 = 280.54) = {(1/0.3481) = $10.6) 50 = 6(4.12)(15) = 180% Compound: 1.3589) = $16.6) + G(P/G.5) = 280.18)33 = 0. P = 60.10) = 2000(5.34 A = 14.12%.

i.i.61 10A = A(F/A.000(7.6667 i = 10.i.8913) = $60.i.10) = 8000(6. therefore.5) i = 38.n) = 20.000 From 10% table.i.000(0.3) + 10.70 P = 8000(P/A.52 1.10%.318 Answer is (c) 2.000(0.1542) = $715.000.000 = 10.6221 From tables.7921) = $48.000(F/A.5) = 100.76 A = 100.i = 4.6%.10%.000(1.i.12%.4) = 61.58 2.000(P/G.000 Chapter 2 3 .25) = 15.5) (F/P.602.9% (Spreadsheet) 2.5%.55 85.12%.5) = 100.12%.45 Answer is (a) 2.000(F/P.7623) + 10.1446) + 500(22.000.64 P = 61. 42 > n > 41 Therefore.000 = 100.5%.4049) + 10.000 = 600.000(A/P.355 = 7(P/A.10) + 500(P/G.741 Answer is (b) 2.27741) = $27.5) + 8.73 F = 100. n is between 7 and 8 years.10%.000(P/A.000(F/P.5) = 1. by spreadsheet.000 = 30.25) (P/A.5) + 10. i = 4% Answer is (a) 2.n) (F/A. n is between 40 and 45 years. n = 8 years 2.79 F = 10.n) = 10.000(P/F.8% (Spreadsheet) 2.000 From 5% table.000(P/A. n = 41 years 2.67 109.0% 2.18%.000(1.10%.n) (P/A.000(F/P.420 Answer is (c) 2.

n) = 4.000 = 15.000(P/A.82 60.18%.n) (P/A.000 n is between 7 and 8 Answer is (b) Chapter 2 4 .18%.= $41.672 Answer is (c) 2.

22 Amt year 5 = 1000(F/A.8264) = $114.7)(P/F.000(2.000(P/A.5278)(0.3) = 100.2) = 26.1159)(0.38629) = $3.000 = A(5.100 3. 22.10%.986 billion 3.10 A = 8000(A/P.2)(P/F.16 A = [20.2) + 2000(P/A.20%.4876)(0.11) + 8000(F/A.10) 100. and set equal to $10. 25.145 3. 46.10%.20%. amortize using A/P.10) + 600 = 8000(0.15) = 10.1 P = 100. 13. 43.12%. 28.4 P = 100.000(1.56 3.19 100.2)((P/F.10) = [20. 49.9672) A = $8839.000(260)(P/A.000(P/A.6455) + 8000(8.2544) + 2000(4.000(5.2)](A/P.8929) = $14.6257)(0. 4.2761(1.000(F/A.13 A = 15.10%.7 A = [0.7)](A/F.9)(A/F.13147) = 10. 55.15%.8%. 52.5278) + 4.12%.000.701(6.06903) = $27.12%.16275) + 600 = $1902 3.8%. and 61 3.4)(F/P.5638)(0.12%.06903) = $12.4)(P/A.25 Move unknown deposits to year –1. 10.4) = [3. 31. 16. 34.7793)(1.000: x(F/A.000 Chapter 3 1 .701(5.2) + 0. CHAPTER 3 Solutions included for problems 1.10%.7%.15%.9228)]{0. 40.SOLUTIONS TO SELECTED PROBLEMS Student: You should work the problem completely before referring to the solution.20%.8%.7854(1.6575) = $442.1000)(6.000(12.908 3.8%.15%.8)(P/F.930 3.3349)(0.000 = A(F/A.1)(P/A.7%.2)(F/P. 37.6944)](0. 19.10%.20%.3) + 200.000(F/A.5)(F/P.2832) + 200. 58.10%.10) = 15.000(16.628 million 3.1) = 1000(4.19)(A/P. 7.8%.7507)(1.000 x(2.

27741) = $23.x = $5922.5) = 82.2) 40.000(P/A.10 .6%.000(P/A.16%.0665) + 3000(1.46 Find P in year –1 and then move to year 0: P (yr –1) = 15.3) = 900(5.993(0.064(A/P.271 3.8) = 22.023 3.943 3.9412](0.000(2.000(P/G.37 First find P at t = 0 and then convert to A: P = $82.0416) – 50.100.10)18]/(0.16%.34 3.10%.3) + 20.16)5]/(0.100.6%.16%.000{[1 – (1 + 0.3) + 4.4869)(0.22) – 50.000(12.000(P/A.8396) + 4.6052)(0.3) + 500(P/A.6407) + 500(1.3) = [4.(1 + 0.3) = $261.8264) 3.08)18/(1 + 0.3)(P/F.16 – 0.79067x = 35.993(A/P.7355) + (x + 2000)(2.6%.280(P/F.6730) = $48.10%.000 = x(1.10%.12%.064 A = 261.6407) = $8928.993 A = 82.100.10%.257.4) + 3000(P/A.6) = $59.63 3.994(0.12%.2)(P/F.65 x = $9467.0.000 = x(P/A.34 P = [4.22)](P/F.10)5/(1 + 0.6%.69 3.43 Find P in year –1 and then find A in years 0-5: Pg (in yr 2) = (5)(4000){[1 .6052) – 1500(0.40 40.16%.28 Find P at t = 0 and then convert to A: P = $22.2) + (x + 2000)(P/A.20130) = $4628.08)} = $281.100.000(98.304 Chapter 3 2 .10%.10%.16%.994 A = 22.10)} = $58.89 (size of first two payments) 3.889.2) – 1500(P/F.994(A/P.280 P in yr –1 = 281.31 Amt year 3 = 900(F/A.

5) – 200(P/G.588 Answer is (a) Chapter 3 3 .94 3.7) – 100(P/G.000 = A(4.12%.4)(F/P.4%.3547 million Answer is (c) 3.12%.4) + [1000(P/A.55 P = 7 + 7(P/A.1) 100.16%.4) = $10.10%.6410)(1.P = 58.49 P = 5000 + 1000(P/A.2) – 3000(F/A.25) = $116.1) = $67.10) A = $19.10%.198 3.000(1.15%.2) = 10.52 P = 2000 + 1800(P/A.21) – 3000(2.632 3.10%.12%.61 100.58 Balance = 10.15%.000(F/P.7)](P/F.12%.10) = $5800 Answer is (b) 3.000 = A(F/A.5) = $6878.304(F/P.10%.

Solve for m by trial and get m = 2 4.10 i = (1 + 0.262% (b) effective 4.1%. 46.16 (a) i/week = 0. 40. 61.28 F = 50(20)(F/P.95 4. 70. 22.25% P = 2.68 4. 13.4 (a) 1 (b) 4 (c) 12 4. 10. 67. 55.7 (a) 5% (b) 20% 4.7(F/P. 43.1%.000 = A(P/A.1. 58. CHAPTER 4 Solutions included for problems 1. 52.22 F = 2.8) A = $117.1881 = (1 + 0.60) = $15.1434 billion 4.3%. 4.3(P/A.99 – 6.24) = 8(21.3%.SOLUTIONS TO SELECTED PROBLEMS Student: You should work the problem completely before referring to the solution.665 Chapter 4 1 .068/26 = 0.000(P/G.99(P/A. 37.577 4. 19. 31.1 (a) monthly (b) quarterly (c) semiannually 4. 28.19 From 2% table at n=12.18/m)m – 1.2434) = $169. 16.000.5%.31 i/wk = 0. 64.2682 4.25 P = 1.91 billion 4.25%.13 0. 7.99% 4.0.40) = $113.2) = $30. 49. F/P = 1.99)(P/A.28)(P/F.8) + 50.1%. 34.04)4 – 1 = 16. and 73 4.9) = $1.34 P = (14. 25.37 2.988.3%.

5%.05)3 Chapter 4 2 . n = 7 Answer is (a) 4. must use i over PP (1 year).543 Now move cash flow to year 5 at i = 20%: F = 36.55 First move cash flow in years 0-4 to year 4 at i = 12%: F = $36.02 –1 = 0.0202)36 – 1]} = $1.99% 4.1) + 9000 = $52.67 P = 7 + 7(P/A.820 F = 17.636 4.96% r /quarter = 2.25) = $116.900 4.852 4. therefore.58 Answer is (d) 4.02% per month A = 50(A/P.543(F/P.30) = $85.3547 million Answer is (c) 4.000 4.4%.02 – 1 = 2.70 PP>CP.36) = 50{[0.3%.02% Answer is (b) 4.52 Set up F/P equation in months: 3P = P(1 + i)60 3.20%.820(F/A.61 Answer is (d) 4.0202 = 2.02%.49 i = e0.127 = er – 1 r/yr = 11.46 0.000 = (1 + i)60 i = 1.64 i/semi = e0.4) = $72.43 Move monthly costs to end of quarter and then find F: Monthly costs = 495(6)(2) = $5940 End of quarter costs = 5940(3) = $17.2.0202)36]/[(1 + 0.968.0202(1 + 0.40 Move deposits to end of compounding periods and then find F: F = 1800(F/A.73 Deposit in year 1 = 1250/(1 + 0.1.85% per month (effective) 4.4.

= $1079.80 Answer is (d) Chapter 4 3 .

4 (a) Total possible = 25 = 32 (b) Because of restrictions. 2&4. 22. Only 12 are acceptable: DN. 34. 10.0.85 Municipal water: Cost/mo = -5(30)(2.2021) (by equation) = $-5.0. 49. 7. etc.10%. and 2&5.66 5. 43. 61.560 Chapter 5 1 .000(P/A.320 PWKZ = -235.315(P/A.5) = -1.4) = $-463. 46. 5. 5. Real world examples that might be analyzed using CC would be Yellowstone National Park. 37. 52. 2.5%. cannot have any combinations of 3.000(P/A. 2&3.10 Bottled water: Cost/mo = -(2)(0.000 – 29.13 PWJX = -205.4. 19.000. 55. CHAPTER 5 Solutions included for problems 1.151.315 PW = -0.09% PWA = -1.000(P/F.10%. 16.6.00 PW = -24.1. 40.16 i/year = (1 + 0.5%.00(P/A.000. 58.12) = $-3.000. 4.202. 5. 1&5.000 .000 .10%.12) = $-278. 28.10%.4) + 20.1.10)/1000 = $0. or 5.09%.10%.3%.000.100 PWB = -600.000(4. and 64 5. 3.000(P/F. 31.4) = $-306.000(P/A. 1.SOLUTIONS TO SELECTED PROBLEMS Student: You should work the problem completely before referring to the solution.40)(30) = $24. 25. Golden Gate Bridge. 4.000 – 600.2) + 2000(P/F.7 Capitalized cost represents the present worth of service for an infinite time.11) = $-6. 1&3.000(P/A.000 – 27.4) – 203. Hoover Dam.1 A service alternative is one that has only costs (no revenues). 13.03)2 – 1 = 6.927 Select material KZ 5. 5. 1&4.

06 =$-3.000 Chapter 5 2 .267 5.02)n = 100.000(A/F.6) + 65.5)/0.000(F/P.350.000 + 100.10) = $-3.000 + (3500 – 2000)(P/A.000 – 500.4) – 1.000 = $-176.6%.000/0.500.08 – [950.979.000 Try n = 19: 104.15%.6) + 12.10 = $19.75 years 5.000(P/F.538 5.10) = $-6275 CC of difference = (8190 .22 CC = -400.40 –250.6275)/0.PWC = -1.000(F/A.4%.550 Select plan C 5.4%.000.000 5.8%. AWA = -50.000(P/F.000(A/F.703 > 100.636. 5.000(P/F.000(1 + 0.31 CC = 100.08 = $1.8%.n) (P/A.062 < 100.15%.000(A/F.000/0.15%.003 Purchase the clamshell 5.10%.3%.921 FWlease = -30.000 Try n = 18: 98.15%.75.37 0 = -22.500.5) = $-8190 AWB = -100.000(A/F.000 – 800.6667 n is between 22 and 23 quarters or 5.3%.34 No-return payback refers to the time required to recover an investment at i = 0%.000 – 500n + 250.25 CC = -250.10)]/0.000(A/F.08 = $-251.1) = $-302.000 – 400.500.6)(F/P. then take difference.3%.000(F/A. and divide by i.2)/0.6) .28 Find AW of each plan.150 5.08 .10%.19 FWpurchase = -150.n) = 14.572.

Therefore.000.2) – 7.000(P/A.5(P/F.000(A/P.07)/2 201.36(P/A.4%.626.60) Try V = 226.941 Answer is (c) 5.000 < 201.55 PW = 50.000.3(P/F.908 Answer is (c) 5.0(P/F.10%.06)/4 = $150 every 3 months 5.485 Try V = 227.10](P/F.n is 18.000.340 5.3) – 10.5) -3.000 + 10.0(P/F. PW = face value = $50.46 I = 10.3.000.000(P/F.408 By interpolation.58 PWX = -66.15)(P/F.921 5.60) + V(P/F.380 Answer is (b) 5.1) – 2.000.18) = $-36.10%. 5.6%.10%.0(P/F.49 Bond interest rate and market interest rate are the same.6) = $-103.444.000.000: 201.6%.6) + 10.10%.7(P/F.64 Answer is (a) Chapter 5 3 .5) – 1.43 LCC = – 2.6%.000 –10.52 I = (V)(0.000(P/A.6%.10%.15) = $173.6%.6%.331.10 = $-26.6%.6(P/F.6%.000/0.6 years. V = $226.61 CC = -10.000: 201.000(0.4) -6.6%.15) + [20.10) .3 months or 1.5)/0.000 = I(P/A.000 > 200.000.4%. 5.

28.3) – 95.000(A/F.000(A/P.15%.549 Select centrifuge.3) = $-136.000(A/F. because the AW calculated over one life cycle is valid only for the entire cycle.12%.15%.3) = $-24. 10.10 AWC = -40.10%.000(A/P.1 The estimate obtained from the three-year AW would not be valid.000 + 40.16 AW100 = 100.10%.2)(A/P.12%.000 + 250.001 Chapter 6 1 .000(A/P.12%.3) – 27.10. 7.10%.13 AWland = -110.4) – 35.SOLUTIONS TO SELECTED PROBLEMS Student: You should work the problem completely before referring to the solution. 6.353 AWincin = -800.777 AWcontract = $-190.063 AWD = -65.218 AWbelt = -170.6) = $-26.3) – 10.536 AWY = -97.6) – 31.6) – 60.000 + 25. 16.4 AWcentrifuge = -250.15%. 4.000(A/P.4) = $-93.000(A/F.000 + 48.6) = $-83. CHAPTER 6 Solutions included for problems 1.000(A/P.000(A/F. and 31 6.000(A/P. not part of the cycle. 6.3) = $-53.000(P/F. 6. Here the asset would be used for only a part of its three-year life cycle.4) + 10.000 + 15.000(A/F.12%.12%.12%.320 Select machine C. 6.000(A/P.000(A/P.000 + 40.12%. 13.12%.000(A/P. 25.000 + 12.000 Use land application.000(A/F.3) = $-53.6) – 12. 6. 22.161 Select robot Y by a small margin. 19.000(A/F.6) = $-223.10%.100) = $10.000 – 26.7 AWX = -85.15%.10%.10%.000(A/F.3) – 30.

78 A = 1055.7)](F/P.10) = $8389 6.000/0.5) – 10.28 Note: i = effective 10% per year.10%. 6.10%.12%.10) – 10.19 AW = -100. move to year 9.69 6.000(A/F.12) = $126.10%. P-1 = [100(P/A.5) = -100.15) = $173.000(F/P.10) = $1055.08) –50.78(0.000 Difference is $1.AW∞ = 100.10)(P/F.25 Find PW in year 0 and then multiply by i.000(0. Amounts are in $1000.000(0.000(0.7) – 10(P/G.12%.17046) = $-16.000 = $-90.000(0.000(F/A. PW0 = 50.12%.10%.941 6.22 Find P in year –1.523 6.000(P/A.000 + 10.15) + (20.6)](0.10) = $10. and then multiply by i.08) –50.000 Answer is (c) Chapter 6 2 . A = [100.000(0.31 AW = -800.8%.

i%. and 55 7.000(P/G.i%.i%.000 + 4800(P/A.3) + 2(P/F. 43.9167 Use tables or Excel i = 3.4)(P/F.000 + (4.000.10 0 = -10 – 4(P/A.2) Solve by trial and error or Excel i = 14.93% per month (Excel) 7.7700) = $93.5) + 4000(P/F.16 0 = -110. 16. 52.i%.000(A/P. 19.30) 0 = -41.i%.000 + 55.000(60)(P/A.000 – 18.i%.0.i%.i%.1 A rate of return of –100% means that the entire investment is lost.4 Monthly pmt = 100.i%.7 0 = -30.i%.000 + (27. 37.000 + [55.5) + 50.i%.000(0.60) = 22. 40. 49.3(P/A.2) + 9(P/A.3489) – 600(69.360) = 100.000(60) + 12.380. 25.00600) = $600 Balloon pmt = 100.1% per year (Excel) 7.0.000 + [450.000(90)](P/A.6% (Excel) 7.30) Solve by trial and error or Excel i = 10.i%.3)(P/F.i%.5)] )(P/F.30) Solve by trial and error or Excel i = 7.i%.5%. 4.0% per year (Excel) (b) 0 = -41.000)(P/A.0.5%.1) + 3(P/F.000(P/A.000(F/P.i%.10) Solve by trial and error or Excel Chapter 7 1 .3) .5) Solve by trial and error or Excel i = 17.60) = 100. 22. 7.60) (P/A. 28. 7. 10.SOLUTIONS TO SELECTED PROBLEMS Student: You should work the problem completely before referring to the solution.000(1.028 7.19 0 = -950. 46.000. 34.13 (a) 0 = -41. 13.i%. CHAPTER 7 Solutions included for problems 1.000.i%.5%.60) – 600(F/A.000)(P/A. 31.9 % (Excel) 7.

2) + 35. Therefore.3) -1000(P/F.000 -32.i%. there is only one sign change in the net cash flow. Norstrom’s criterion is not satisfied.000(P/F.000 +3000 +2000 (a) There are four sign changes in net cash flow.000 -13.i%. $ 0 18. $ -33.25 Tabulate net cash flows and cumulative cash flows.1) .i%. Therefore. in this case.000 -2000 +35.000 -30.4) Chapter 7 2 . real solution.45% per year (Excel) 7. Quarter 0 1 2 3 4 5 6 7 8 Expenses -20 -20 -10 -10 -10 -10 -15 -12 -15 Revenue 0 5 10 25 26 20 17 15 2 Net Cash Flow -20 -15 0 15 16 10 2 3 -13 Cumulative -20 -35 -35 -20 -4 +6 +8 +11 -2 (a) From net cash flow column. However. $ -33.000 Savings. there may be up to two i* values.000 12.000 +3. Thus.000 + 3000(P/F.000 -1000 Cumulative. sign starts negative but it changes twice. $ -33. 0 = -33.i = 8. 7.000 38.i%. so. A nonconventional series has more than one sign change. there is only one positive. 7.000 -20.28 The net cash flow and cumulative cash flow are shown below. there are two possible i* values (b) In cumulative cash flow column.000 55. there are four possible i* values. 7.2000(P/F.000 Net Cash Flow.000 -40. since the cumulative cash flow is negative.28 (cont) (b) Cumulative cash flow starts negative and changes only once. Year 0 1 2 3 4 Expenses.22 In a conventional cash flow series. there is no positive rate of return value.000 -15.

there is only one ROR value. Year 1 2 3 4 5 6 7 8 9 10 Cash Flow.000 +14. so there are three possible ROR values.000 (a) There are three changes in sign in the net cash flow series. Chapter 7 3 .000 -20.000 -31.10) + 14.3) + 50. $ -5.i. However. i’ is used in all equations.000 -15.000(F/P.000 -25. (b) Move all cash flows to year 10.000 -30. 0 = -5000(F/A.000 Solve for i by trial and error or Excel i = 6.000 -26.000 Cumulative.31 Tabulate net cash flow and cumulative cash flow values.1% per year (Excel) 7. all F values are negative except the last one. $ -5000 -5000 -5000 -5000 -5000 -5000 +9000 -5000 -5000 -5000 + 50.6] is applied.000 -21. The composite ROR (i’) is the same as the internal ROR value (i*) of 6.i.3% per year.3% (Excel) (c) If Equation [7.000 -10. according to Norstrom’s criterion regarding cumulative cash flow.Solve by trial and error or Excel i = 2. Therefore.

5.1% per year (from problem 7.400i’3 .000i’2 – 5000i’3 F3 < 0.000.000 – 75.000i’4 F4 > 0. use i’ 2 F3 = (-1000 – 6000i’ – 5000i’ )(1 + i’) = -1000 – 6000i’ – 5000i’2 –1000i’ – 6000’i2 – 5000i’3 = -1000 – 7000i’ – 11.000 – 8000i’ – 18.37 (a) i = 5.7.06)/4 = $75.77% per year Chapter 7 4 .120) .000.6% per year Effective i per year = (1 + 0. c. use i’ F4 = (-1000 – 7000i’ – 11.600.000i’4)(1.000(P/F.000 = 19.000.i%.000i’3 . the City got $4.5.750i’4 Set F5 = 0 and solve for i’ by trial and error or spreadsheet.i%.5.000i’2 – 5000i’3)(1 + i’) + 20.000i’2 – 16.700i’2 – 18. is not equal to i* rate of 44.5.000i’3 .65(4) = 6.29): F0 = -5000 F0 < 0.500.000(0.000 per quarter After brokerage fees. use i’ F1 = -5000(1 + i’) + 4000 = -5000 – 5000i’ + 4000 = -1000 – 5000i’ F1 < 0.120) Solve for i by trial and error or Excel i = 1.65% per quarter (Excel) (b) Nominal i per year = 1. the ROR equation from the City’s standpoint is: 0 = 4.066/4)4 –1 = 6. use c F5 = (19.000 – 8000i’ – 18.7% per year 7.000 = 6850 – 9200i’ – 20. before brokerage fees.000i’2 – 16.15) – 15.34 Apply net reinvestment procedure because reinvestment rate.000(P/A. However. i’ = 35. use i’ F2 = (-1000 – 5000i’)(1 + i’) = -1000 – 5000i’ –1000i’ – 5000i’2 = -1000 – 6000i’ – 5000i’2 F2 < 0.

10) (P/A.000(P/A.i%.4) Solve for i by trial and error or Excel i = 9.0% per six months 7.000 + (10.8) + 5. the best answer is (c).000/i)(P/F.49 0 = -100.99%% per year Answer is (a) (Excel) 7.000 + 10.10)/2 = $250 per six months 0 = -5000 + 250(P/A.43 (Excel) Answer is (c) 7. Chapter 7 5 .000)(b)/2 b = 5% per year payable semiannually Answer is (c) 7.i.i.46 0 = -60.8) Solve for i by trial and error or Excel i = 6.i%.52 250 = (10.7.0000 From tables.40 i = 5000(0. the interest rate received by the purchaser is the bond interest rate of 10% per year payable quarterly.10) = 6. Therefore.55 Since the bond was purchased for its face value. i is between 10% and 11% Answer is (a) 7.500(P/F.i. Answers (a) and (b) are correct.

31.i.2) + 1000(P/F. 8. 7. 8.000 -1. CHAPTER 8 Solutions included for problems 1. 10.10 Year 0 1 2 3 4 5 6 Machine A -15. 0 = -3000 –200(P/A.600 -1600 -15. (b) The rate of return on the increment has to be smaller than 10%. select Ford.000 -400 -400 -400 -400 -400 +6000 – 400 B–A -10.000(P/F. 22. 37.7 (a) Incremental investment analysis is not required. 25. 13. Neither alternative should be selected because neither one has a ROR greater than the MARR.i.13 (a) Find rate of return on incremental cash flow.16 0 = -10.1 (a) The rate of return on the increment has to be larger than 18%.4) + 12.SOLUTIONS TO SELECTED PROBLEMS Student: You should work the problem completely before referring to the solution.4) Solve for i by trial and error or Excel Chapter 8 1 .4% (Excel) (b) Incremental ROR is less than MARR. 4. 16.4 The rate of return on the increment of investment is less than 0.000 +1200 +1200 +13. 40.000 + 1200(P/A.3) + 4700(P/F. and 43 8. 19. Alternative X should be selected because the rate of return on the increment is known to be lower than 20% (b) Incremental investment analysis is not required because only Alt Y has ROR greater than the MARR (c) Incremental investment analysis is not required.i. (d) The ROR on the increment is less than 26%.i. 28.3) i = 10.000 –1600 + 3000 -1600 -1600 +3000 –1600 Machine B -25. 34.200 +1200 +1200 +4200 8.i. but an incremental investment analysis is required to determine if the rate of return on the increment equals or exceeds the MARR of 20% (e) Incremental investment analysis is not required because it is known that the ROR on the increment is greater than 22%. 8. 8.

i.000(P/F.000(A/P.000(A/P.1) + 600.2000(A/F.4) + 2000(A/F.41.000 – 5000)(P/F.i.175 = $114.2) + 850.175 Difference = 900.000(A/P.3) P = 400.3% (Excel) Select machine B.000 i = 3.8) + 8000 + 500(A/F.8) + 10.25 Find ROR on increment of investment.i.000(A/P.i.i.i.i.000(A/P.500 .4% (Excel) Method B is not acceptable C vs DN: 0 = .i = 30.2)(A/P. 0 = -500.1% (Excel) Method A is not acceptable B vs DN: 0 = .28 (a) A vs DN: 0 = -30.825 8.4) + 5000 + (40.2963) = $785. 8.4) Solve for i by trial and error or Excel i = 6.i. i.6667) + 600.8) Solve for i by trial and error or Excel i = 11.8) Solve for i by trial and error or Excel i = 3.i.4444) + 850.i. select semiautomatic machine 8.22 Find ROR for incremental cash flow over LCM of 4 years 0 = -50.000(0.i.000 – 785.5% < MARR Select design 1A 8. 0 = -P + 400.10) + 60.53.i.000(P/F.i.8) + 5000 + 2000(A/F.8) Solve for i by trial and error or Excel i = 11.000(0.1% (Excel) i < MARR. i.8) Solve for i by trial and error or Excel i = 2.3% (Excel) Method C is acceptable 8.000(A/P.000(P/F.28 (cont) D vs DN: 0 = .8) + 4000 + 1000(A/F.1% (Excel) Method D is acceptable Chapter 8 2 .36.i.19 Find P to yield exactly 50% and the take difference.000(0.

20) + 10.i.34 (a) Find ROR for each increment of investment: E vs F: 20.i.000(A/P.8) Solve for i by trial and error or Excel i = 11.i.500 .i. and C (b) Eliminate alternatives with ROR < MARR.000(A/P. C.1% (Excel) Eliminate A B vs DN: 0 = .8) + 2.000(A/P.12.i.8) + 4000 + 1000(A/F.000(i) = 50.4% (Excel) Eliminate B C vs DN: 0 = .25) Chapter 8 3 .8) Solve for i by trial and error or Excel i = 2.8) + 5000 + 2000(A/F.000(A/P.36.4% (Excel) Eliminate D Select method C 8.3% (Excel) Eliminate DN C vs D: 0 = .35) i = 65% E vs G: 20.i.(b) A vs DN: 0 = -30.8) Solve for i by trial and error or Excel i = 10. Select A. compare others incrementally: Eliminate D and E Rank survivors according to increasing first cost: B.000(0.i.2500(A/F.8) Solve for i by trial and error or Excel i = 3.000(0.20) + 30.000(i) = 30.41.000(0. A B vs C: i = 800/5000 = 16% > MARR Eliminate B C vs A: i = 200/5000 = 4% < MARR Eliminate A Select project C 8.000(0.31 (a) Select all projects whose ROR > MARR of 15%. B.8) + 8000 + 500(A/F.i.

000 (c) Conduct incremental analysis using results from part (a): E vs DN: i = 20% > MARR eliminate DN E vs F: i = 65% > MARR eliminate E F vs G: i = 10% < MARR eliminate G F vs H: i = 11% < MARR eliminate H Select Alternative F (d) Conduct incremental analysis using results from part (a).000(0.000(0.3% E vs H: 20.35) = $10. eliminate DN E vs F: i = 65% > MARR.000(0.20) = $4000 F: A = 30. eliminate G F vs H: i = 11% < MARR. eliminate G F vs H: i = 11% = MARR.25) i = 10% F vs H: 30.000(0. eliminate E F vs G: i = 10% < MARR.20) i = 11. eliminate F Select alternative H 8.25) = $12.500 H: A = 80.20) i = 11% G vs H: 50.000(0. eliminate H Select F as first alternative.20) i = 20% F vs G: 30.20) + 60. Chapter 8 4 .i = 28. E vs DN: i = 20% > MARR. E vs DN: i = 20% >MARR.000(0.000(0.000(i) = 80.000(i) = 80.25) + 30.000(0. eliminate E F vs G: i = 10% < MARR. eliminate DN E vs F: i = 65% > MARR.000(i) = 80.000(0.000(0.20) = $16.34 (cont) (e) Conduct incremental analysis using results from part (a). compare remaining alternatives incrementally.35) + 50.7% (b) Revenue = A = Pi E: A = 20.000(0.000(0.35) + 20.000(i) = 50.500 G: A = 50.

eliminate E G vs H: i = 11.3% > MARR.40 Answer is (d) 8. eliminate DN E vs G: i = 28.7% < MARR. eliminate H Select alternatives F and G 8.E vs DN: i = 20% > MARR.37 Answer is (c) 8.43 Answer is (b) Chapter 8 5 .

37. Profit (return on investment) will be stated in the contract. CHAPTER 9 Solutions included for problems: 1. or user fees. 32. 16. 40. management) for some years after construction. 9. 28. (c) Public sector projects are usually funded from taxes. (b) Public sector projects usually have long lives (30-50 years) while private sector projects are usually in the 2-25 year range.4 Some different dimensions are: 1. 9.SOLUTIONS TO SELECTED PROBLEMS Student: You should work the problem completely before referring to the solution. Corporation will legally own the highway right of way and improvements until contracted time is over and title transfer occurs. 25. 5. Corporation will probably operate the highway (tolls. 19.7 (a) Chapter 9 1 . 3. 7. contractor is not provided with the final plans before building the highway. 13. 10. or bank loans. 4. Obtaining project financing may be a partial responsibility in conjunction with the government unit.1 (a) Public sector projects usually require large initial investments while many private sector investments may be medium to small. Contractor is involved in design of highway. and 43 9. 2. 4. 22. Private sector projects are usually funded via stocks. government bonds. maintenance. corporate bonds. 34.

10 All parts are solved on the spreadsheet once it is formatted using cell references.000 to get B/C = 1.023.(b) Change cell D6 to $200. Chapter 9 2 . 9.

913.07) + 300.000 + 2.66 9.000]/0.000(P/A.049 PW M&O Cost = 300.15) = $437. PW disbenefits = 45.692 9.000 P = [(600. 1.6%.9.000(P/A.000____ P(0.19 Calculate the AW of initial cost.3 = 600.07 = $2.15) = $2.913.13 (a) By-hand solution: First. set up AW value relation of the initial cost.049__ 2.800. P capitalized a 7%.16 Convert all estimates to PW values. Chapter 9 3 .660 = 0.6%. Then determine P for B/C = 1.000/1.3) – 300.3.200.000 – 437.307.660 B/C = 3. then the 3 B/C measures of worth. The roadway should not be built.

000 – 50.8%.000)(P/F.000 – 600.22 Alternative B has a larger total annual cost.140/396.000 – 250.362 = 1.362 Incr benefit = (950.000)(P/A. it must be incrementally justified. Chapter 9 4 .9.11 Select alternative B 9. Select east coast site.6) = 441.20) = $396. Incr cost = (800.000) + (70.8%.140 Incr B/C = 441.25 East coast site has the larger total cost.

000) – 50.000 Incr D = $10.000 – 30.000 – 50.12) = $360.000 Incr M&O = (65.000.000 W is not justified. select location E = 0.000/360.000 + 10.9.000 – 10.17 Location E is justified.000 – 25. Use the procedure in Section 9.000 Incr C = (7 million – 3 million)(0. Benefits are the incremental amounts for lowered costs of annual usage for each larger size pipe.28 (b) Location E B = 500.3 to solve.000 Modified B/C = 420. Chapter 9 5 .000 480.000 = $-10. Modified incr B/C = 200.42 9.000 = 1.12) = $480.000 = $420.000 C = 3.000 Note that M&O is now an incremental cost advantage for W.000 (0. difference in usage fees define benefits.32 Combine the investment and installation costs. Location W Incr B = $200.

03 = 1.580)(A/P.8%. $ -200 600 300 Not used since the benefits are defined by usage costs.15) = 3270(0.0 Eliminate 130 mm size.93 < 1. Size 130 150 200 230 Total first cost.11683) = $178.11683) = $323.310 14.350 – 14.580 – 11.15) = 1. 4. 9.530(0.780)(A/P.350 Annual benefits. Select 200 mm size. Determine incremental B and C and select at each pairwise comparison of defender vs challenger. $ 9.0 Eliminate 230 mm size.03 B = 5800 – 5200 = $600 B/C = 600/382. 5-7.000 – 5. 200 vs 150 mm C = (14. Chapter 9 6 .15) = 2770(0.11683) = $382.310)(A/P. 230 vs 200 mm C = (17.1.75 = 1.12 > 1.580 17. Order of incremental analysis: 3.0 Eliminate 150 mm size.34 (a) Site D is the one selected.75 B = 6.310 – 9.780 11.800 = $200 B/C = 200/178.57 > 1.8%.62 B = 5200 – 4900 = $300 B/C = 0. 150 vs 130 mm C = (11.8%. 2.

Those selected are: D.1 = BP /10 2.0.48 9.56 Chapter 9 7 BP = 11 BQ = 96 BR = 70 BS = 120 . select the largest three of the four with B/C > 1.83 40 – 10 Incremental B/C for R vs P B/C = 1. 9.4 = BQ/40 1.(b) For independent projects.5 = BS/80 Incremental B/C for Q vs P B/C = 96 – 11 = 2. and E.4 = BR/50 1.37 (a) Find benefits for each alternative and then calculate incremental B/C ratios. F. Benefits for P: Benefits for Q: Benefits for R: Benefits for S: 1.37 (cont) Incremental B/C for S vs P B/C = 1.

Incremental B/C for S vs Q B/C = 0.40 Answer is (a) 9.60 Disregard due to less B for more C.67 (b) Select Q 9.Incremental B/C for R vs Q B/C = -2.43 Answer is (c) Chapter 9 8 .60 Incremental B/C for S vs R B/C = 1.

0.09 AW2 = 8.25 – 60(A/P.000 level 10. CHAPTER 10 Solutions included for: 2. AW1 = 1.) 10.2 and Section 10.2 Incremental cash flow analysis is mandatory for the ROR method and B/C method.14 (a) Calculate the two WACC values.SOLUTIONS TO SELECTED PROBLEMS Student: You should work the problem completely before referring to the solution.11 (a) (b) (c) (d) Bonds are debt financing Stocks are always equity Equity Equity loans are debt financing. like house mortgage loans Select 2. Hand solution: Find the AW for each cash flow series on a per household per month basis.500(A/P.5%.0.60) = $0.1 for comments. 11. Chapter 10 1 . 16. 14.8 (a) (b) (c) (d) 10. 24. 44. so rework it using AW.00 . 38. 8.67 Select program 1 10. 23. 20.5 (a) Hand solution: Choose the AW or PW method at 0. and 46 10. 41. (b) The B/C method was the evaluation method in chapter 9. Computer solution: Either the PMT function or the PV function can give singlecell solutions for each alternative.5%.60) = $-1. 27. It is the alternative investing the maximum available with incremental i* > 9% Select 3 Select 3 MARR = 10% for alternative 4 is opportunity cost at $400. 5. 29. 32. 35. (See Table 10. 12.5% for equal lives over 60 months.

i*.6)[(0. 0 = 4.2% per quarter = 4.8% per year (nominal) Debt financing at 4. Debt cost of capital benefits from tax savings.4)[0.6(12%) + 0.40) = $15.4 (9%) = 10.907% 10.20 Before-taxes: WACC = 0.000(A/P.000(P/A. have to decrease.4 = 7% Debt capital cost would have to decrease from 9% to 7%.683 Chapter 10 2 .8%.5%) = 12.208 Tax saving = 39.000 Annual bond interest NCF = 320.000 Find quarterly i* using a PW relation.2(12%)]/0.000 = $39.000.6(12%)(1-0.) 10.2(12%) + 0.i*.48.2(12%) + 0.8%.8) = $139.4) = 4.208 – 100.28% per year 10.0.000/4 = $48. Alternative 2: 10% = WACC2 = 0.4(x1) x1 = [10% .0.5% to 9.4.000(P/F.23 Equity cost of capital is stated as 6%.4(9%) + 0. Alternative 1: 10% = WACC1 = 0.0.000.16 WACC = cost of debt capital + cost of equity capital = (0. Before-tax bond annual interest = 4 million (0.4) = $192.208 Principal payment = 800.8(x2) x2 = [10% .208(0.40) .667(8%) + 0.8% per year After-tax: After-tax WACC = (equity)(equity rate) + (debt)(before-tax debt rate)(1–Te ) = 0.4% Use approach 1.8 = 9.4(9%) + 0.5% 10.8% per year is cheaper than equity funds at 6% per year.6)(9%)] = 7.000(1 – 0.40) i* = 1.333(10%)] + (0.000 .8(12.5% Debt capital cost would.35) = 8.000/8 = $100. with a D-E mix of 40%-60% (b) Let x1 and x2 be the maximum costs of debt capital.000 Effective quarterly dividend = 192. now from 12.8% WACC2 = 0. (Note: The correct answer is also obtained if the before-tax debt cost of 8% is used to estimate the after-tax debt cost of 8%(1 .6(12%)]/0.6(12%) + 0.WACC1 = 0.24 (a) Bank loan: Annual loan payment = 800.000 Annual interest = 139.4)(5%) + (0.6(12%) = 10.08) = $320. again.

208 – 15.000 = $123.1 = 6.44% Equity -. 10.03) .common stock: 100.29 Determine the effective annual interest rate ia for each plan. Effective rate after taxes is Chapter 10 3 .800. compounded quarterly.5%) + 0.2 million or 32% of total capital Re = 1.retained earnings: cost is 5.000 – 19.225% Plan 2: 100% equity has the lowest before-tax WACC.000(0. Equity capital is 40% at a cost of 7.000(0.27 Debt capital cost: 9. 12 Plan 1: ia for debt = (1 + 0.8) –123.000(A/P. (b) Bonds cost 6% per year.525 i* = 4.40) = $19.32(5.06) = $48.225%) + 0.5% for $6 million Equity -. WACC = 0.44%) + 0.200 Effective bond interest = 48.i*.10) .00583) -1 = 7.000(32) = $3.000(A/F.03) .525 + 100.683 = $23.525 Effective annual payment = 23.44% for this 8% of total capital.5(7.5% per year Debt capital is 5% per year.08(5.02 = 5.95% Bond issue: Annual bond interest = 800.66% 2 Plan 2: ia for 100% equity = WACCB = (1 + 0.09% 12 Plan 3: ia for 100% debt = WACCC = (1 + 0.09% WACCA = 0.800 The AW-based i* relation is: 0 = 800.44%) = 7.88% 10.200 = $28.28.Effective interest payment = 39. The answer is the same before-taxes. which is less than the 8% loan.10/ 32 + 0.5(6.525 The AW-based i* relation is: 0 = 800. 10.09%) = 6.6% (RATE or IRR function) Bond financing is cheaper.800 .000(A/P.10) i* = 3. Select all those with AW > 0.1 = 6.i*.225% 2 ia for equity = (1 + 0.i*.6(9.000 Tax saving = 48. revenue projects with different lives.00583) -1 = 7.32 Two independent.

000(P/A.14%.15) = $-874 Conclusion: 100% equity does not meet the MARR requirement Chapter 10 4 . (b) With 2% added for higher risk.05/4)4 .8. select both independent projects. Determine PW at the MARR.5% is known.4(7.35 100% equity financing MARR = 8.000 + 30.5%) + 0.5665% per year WACC = 0.1] (1.14% per year MARR = WACC = 5.6(3. 10.3) = 3.0. only project W is acceptable.5665%) = 5.5%. PW = -250.After-tax debt i* = [(1 + 0.14% (a) At MARR = 5.

336 1.000 PW = -100.38 All points will increase.8% MARR = 8.5 100 297.150. This result simply Chapter 10 5 .000 10.034 0.087 Conclusion: 60% debt-40% equity mix does not meet the MARR requirement 10.41 (cont) Attribute 1 2 3 4 5 Wi____ 0.15) = $ -7.44 (a) Both sets of ratings give the same conclusion.60) = $150.5 _____Logic________ Most important (100) 10% of problem 1/2(100) 0. Conclusion: The minimum WACC will increase with a higher D-E mix.000 = $100. The new WACC curve is relatively higher at both the 0% debt and 100% debt points and the minimum WACC point will move to the right.609 per year Cost of 60% debt capital is 9% for the loan.41 Attribute 1 2 3 4 5 Importance 100 10 50 37.loan payment = $11.8% Annual NCF = project NCF . but the consistency between raters should be improved somewhat.000 + 11.391(P/A.15) = $18.000(0.5 10.126 0. since debt and equity cost curves rise relative to those for lower D-E mixes. 10.75(50) Same as #1 Wi = Score/297. WACC = 0.4(8.5%) + 0.8.9%.168 0. alternative 1.336 0.8%.6(9%) = 8.000 .391 Amount of equity invested = 250.000(A/P.000 Loan payment = 150.60%-40% D-E financing Loan principal = 250. except the 0% debt value.

(b) Vice president Vij_______ Attribute Wi 1 2 3 _______________________________________ 1 2 3 0. 10.40 0.10 0.5 over all six attributes.50 0. Vij______ 1 Total 2 470 515 3__ 345 Select alternative 2.50 3 28 50 81 4 40 40 84 10 28 45 83 Select alternative 2 Assistant vice president Vij for alternatives Attribute Wi 1 2 3 _______________________________________ 1 2 3 0.40 0.shows that the weighted evaluation method is relatively insensitive to attribute weights when an alternative (1 here) is favored by high (or disfavored by low) weights.10 15 28 10 53 20 40 8 68 50 28 9 87 Select 3 Rating differences on alternatives by attribute can make a significant difference in the alternative selected. based on these results.46. Chapter 10 6 . the same choice is made. Sum the ratings in Table 10.

(b) On the same spreadsheet. 15. Extend the years to 10.SOLUTIONS TO SELECTED PROBLEMS Student: You should work the problem completely before referring to the solution. decrease salvage by $1000 each year. 21.5 P = market value = $350. 36. 27. 11. 5. 33. The ESL is relatively insensitive between years 5 and 7. 9.000 AOC = $125. without owning or using either one.8. CHAPTER 11 Solutions included for problems 3. 17. 30. and increase AOC by 15% per year. but the conclusion is ESL = 6 years. as in Problem 11. and 39 11.9 (a) The ESL is 5 years.000 per year n = 2 years S = $5.000 11. Chapter 11 6 . 24. 11.3 The consultant’s (external or outsider’s) viewpoint is important to provide an unbiased analysis for both the defender and challenger.

000(0.6) + P(0.000.000 .1) = $ -108.18%.2) – 75.000 For n = 2: AW2 = -100.000(2.18%.828.000 P = $51.000 and solve for P.316 ESL is 1 year with AW1 = $-108.000(A/G.6) – 75. Chapter 11 6 .000(A/G.6) -108.000 + 100.0252) + P(0.18%.110.000(A/P.10. the required lower first cost.18%.828 The first cost would have to be reduced from $100.18%.10591) 0.18%.252 + 108.37715)(0.1) – 75.85)6(A/F.24597P = -95. (b) Set the AW relation for year 6 equal to AW1 = $-108.000 – 10.000(0.10.28591) – 75. This is a quite large reduction.85)1(A/F.11.2) = $ .2) + 100.18%.18%.000(A/P.000 to $51.000 = -P(0.11 (a) For n = 1: AW1 = -100. AW6 = -108.000 = -P(A/P.000 .85)2(A/F.

24 (a) By hand: Find ESL of the defender. 11.15 Spreadsheet and marginal costs used to find the ESL of 5 years with AW = $-57.141.190 AWC = -700.000 + 50.060 This is 85% of the first cost 7 years ago.5) – 160.5) – 160.000 = AWC = -260.15%.000 = $-173.10%.000 Recommendation now is to retain the defender for 3 years.788 Retain the current bleaching system for 5 more years. compare with AWC over 5 years.10) – 150.1) – 50.10%. way too high for a trade-in value now.17 Defender: ESL = 3 years with AWD = $-47.15%. 11. -RV(A/P. (b) Find the replacement value for the current process.11. AWD = -50.000(A/F.000 + 6000(A/F.21 (a) The n values are set. then replace.10%. calculate the AW values directly and select D or C.10%.1) Chapter 11 6 .000(A/P.788 RV = $382.10) = $-260. 11. For n = 1: AWD = -8000(A/P.000(A/P.000 Challenger: ESL = 2 years with AWC = $-49.

11.1) + = -$57.15%.200 AWC = $-66.12) RV = $196.200 For n = 2: AWD = -8000(A/P.000(P/F.12) – 50. AWD = $-53.15%.000(A/F.200 AWC = -125.3) .000 + 10.12%.806 Select the defender now and replaced after one year.5) = $-66.000(A/F.27 (cont) (b) By spreadsheet: One approach is to set up the defender cash flows for increasing n values and use the PMT function to find AW.7) = -400.000(A/F.= $-53.000(A/P. compare AW values.2) – 50.15%.50.15%. (b) To make the decision.456 For n = 3: AWD = -8000(A/P.000 + 50.000(A/P. -RV(A/P.089 The ESL is now 1 year with AWD = $-53.12%. Richter should keep the defender now and replace it after 1 year.12%. Chapter 11 6 .12%.000 + (-3000 + 4000)(A/F.2) = $-54. Just over 4 years will give the same AW values.000 + 35.15%.27 (a) By hand: Find the replacement value (RV) for the in-place system.807 Since the ESL AW value is lower that the challenger AW.612 11.7) – 75.5) – 31.15%.

33 (a) Chapter 11 Option 1 2 3 4 5 6 7 8 Defender 0 0 0 0 3 3 3 3 Challenger 5 6 7 8 2 3 4 5 6 .11. Without a study period. all viable options must be evaluated.30 (a) If no study period is specified. the three replacement study assumptions in Section 11. (b) If a study period is specified. Selection of the best option concludes the study. 11. So. the services of the defender and challenger can be obtained (it is assumed) at their AW values.1 hold. the ESL analysis or the AW values at set n values determine the AW values for D and C. When a study period is specified these assumptions are not made and repeatability of either D or C alternatives is not a consideration.

A total of 5 options have AW = $-90. 11. defender can be replaced now or after 3 years and challenger can be used from 2 to 5 years. Must us AW values. depending on the option chosen.36 Answer is (a) 11.39 Answer is (c) Chapter 11 6 . Several ways to go. (b) PW values cannot be used to select best options since the equal-service assumption is violated due to study periods of different lengths.000.

10. 12.2 Any net positive cash flows that occur in any project are reinvested at the MARR from the time they are realized until the end of the longest-lived project being evaluated. 4. 3 2. 7. 15. and 25 12.7 (a) Select project B for a total of $200. 12. 19. 22. the viable bundles are: Projects DN 2 3 4 2. 4 3. since it is the only one of the three single projects with PW > 0 at MARR = 12% per year. this makes the lives equal for all projects. 4 Investment $ 0 150 75 235 225 385 310 12.7 (cont) (b) Use SOLVER to find the necessary minimum NCF.4 Considering the $400 limitation. In effect. a requirement to correctly apply the PW method. 13.SOLUTIONS TO SELECTED PROBLEMS Student: You should work the problem completely before referring to the solution.000. CHAPTER 12 Solutions included for problems: 2. Chapter 12 1 .

Chapter 12

2

**12.10 (a) Set up spreadsheet and determine that the Do Nothing bundle is the only
**

acceptable one, and that PWC = $-6219. Since the initial investment occurs at

time t = 0, maximum initial investment for C at which PW = 0 is

-550,000 + (-6219) = $-543,781

(b) Use SOLVER with the target cell as PW = 0 for project C. Result is MARR =

9.518%.

Chapter 12

3

12.13 (a) PW values are determined at MARR = 15% per year.

Bundle

1

2

3

4

5

Projects

1

2

3

4

1,3

Initial

investment, $

-1.5 mil

-3.0

-1.8

-2.0

-3.3

6

1,4

-3.5

7

3,4

-3.8

NCF,

Life,

$ per year years

360,000

8

600,000

10

520,000

5

820,000

4

880,000

1-5

360,000

6-8

1,180,000

1-4

360,000

5-8

1,340,000

520,000

PW at 15%

$115,428

11,280

- 56,856

341,100

58,572

1-4

5

456,528

284,244

**Select projects 1 and 4 with $3.5 million invested.
**

12.15

Budget limit, b = $16,000

Bundle

1

**MARR = 12% per year
**

NCF for

years 1 through 5

$1000,1700,2400,

3000,3800

500,500,500,

500,10500

5000,5000,2000

Projects

1

Investment

$-5,000

2

2

- 8,000

3

3

- 9,000

4

4

-10,000

0,0,0,17000

5

1,2

-13,000

6

1,3

-14,000

7

1,4

-15,000

**1500,2200,2900,
**

3500,14300

6000,6700,4400,

3000,3800

1000,1700,2400,

20000,3800

Chapter 12

4

PW at 12%

$3019

- 523

874

804

2496

3893

3823

C and E.000.12.19 (a) Select projects C and E. (b) Change MARR to 12% and the budget constraint to $500. Chapter 12 5 . Select projects A.

12.22 Select projects 1 and 4 with $3.5 million invested.

Chapter 12

6

**12.25 Use SOLVER repeatedly to find the best projects and corresponding value of Z.
**

Develop an Excel chart for the two series.

Chapter 12

7

**SOLUTIONS TO SELECTED PROBLEMS
**

Student: You should work the problem completely before referring to the solution.

CHAPTER 13

Solutions included for problems: 1, 5, 8, 11, 14, 17, 21, 23b, 26

13.1 (a)

(b)

**QBE = 1,000,000/(8.50-4.25) = 235,294 units
**

Profit = 8.50Q – 1,000,000 - 4.25Q

at 200,000 units: Profit = $-150,000 (loss)

at 350,000 units: Profit = $487,500

13.5

**From Equation [13.4], plot Cu = 160,000/Q + 4.
**

(a) If Cu = $5, from the graph, Q is approximately 160,000. If Q is determined by

Equation [13.4], it is

5 = 160,000/Q + 4

Q = 160,000/1 = 160,000 units

(b)

13.8

**From the plot, or by equation, Q = 100,000 units.
**

Cu = 6 = 200,000/Q + 4

Q = 200,000/2 = 100,000 units

**On spreadsheet for 13.7, include an IF statement for the computation of QBE for
**

the reduced FC of $750,000. The breakeven point reduces to 521,739.

Chapter 13

1

000(A/F.10%.13.40x = -45(125 +20x) -125.000 .0x = -1.000 + 305.0.11 FC = $305.5) .8) .000(0.1.2013) + 5.1.12%.0813) .(700/8000)x .0x = -1.0x -800(0.2.17 (a) Let x = breakeven days per year.900(A/P.15x .40211) .0x x = 2873 hours per year 13.000 (r – 5500) = 305.1.000 = (r – 5500)8000 – 305.000 .0875x .0.3) .12%.000(A/P.2.000 / 5000 r = $5561 per unit Profit = (r – v)Q – FC 500.14 Let x = hours per year -800(A/P.900(0.2638) .000) / 8000 r = $5601 per unit 13. Use annual worth analysis.000(0.000 (r – 5500) = (500.(300/2000)x -1. -125.000 (a) (b) v = $5500/unit Profit = (r – v)Q – FC 0 = (r – 5500)5000 – 305.10%.6 days per year Chapter 13 2 .8) + 5.40x = -5625 –900x x = 24.

including some number of yards per year as a guess.000(A/P.[6(14)/2500]x -40. Use SOLVER to force the breakeven equation to equal 0.0. buy.756 13.2. Chapter 13 3 .10) .000(0.012x = -0.14903) . Selling price is estimated to be between $206. Annual cost is $-29.2.000.574 yards per year (b) Solution by computer: There are many Excel set-ups to work the problem. 13.(b) Since 75 > 24.6 days. with a constraint that total yardage be the same for both alternatives.8%.000 -(30/2500)x = . Breakeven is between 15 and 16 years.21 Let x = yards per year to breakeven (a) Solution by hand -40.250 and $210.0336x x = 368.23 (b) Enter the cash flows and develop the PW relations for each column. One is: Enter the parameters for each alternative.000 .

988P Chapter 13 4 .10%.10%.96P(P/F.16) .4.10) .10%.10%.8) .1.6.Breakeven occurs here 13.3855) + 1.1486) + 2.4P(P/F.10%.397 13.1.32) -14.10%.10%.30) -P[1 + 1.4.24) – 10.26 (cont) PW of sandblasting PWs = -P .12.2. Equate the PW of painting each 4 years to PW of sandblasting each 10 years.10%.36) = $-13.361(P/F.033(P/F.360(P/F.10%.3.806(P/F.967(P/F.838(P/F.10%.447(P/F.032(P/F.96(0.28) .20) -8. up to 38 years.10%12) – 5.74(0.800 .74P(P/F.10%. PW of painting PWp = -2.039(P/F.26 (a) By hand: Let P = first cost of sandblasting.20) .0573)] = -1.4(0.4) .

and re-SOLVER to get: 30%: P = -$7133 20%: P = -$7546 Chapter 13 5 . Use SOLVER to find breakeven at P = $6739.739 (b) By computer: Enter the periodic costs. (c) Change MARR to 30% and 20%.Equate PW relations to obtain P = $6. respectively.

5 = 6.03)27 = $450.27) = 32.005 + f + (0.2 = 1 + x 1.10 (a) At a 56% increase.8% per year 14. 43. 13.04 = 0.000/(1 + 0.000.04)(0.570 CV0 for amt in yr 3 = 13.915 14.000/(1 + 0. CHAPTER 14 Solutions included for problems 1. 37.06)1 = $12.672 14. 22.4 Then-current dollars = 10. 10.16 For this problem.56 = (1 + x)5 1.005f = 0. 34. 7. 31.04 + 0. 19. and 49 14.06)3 = $10. 14.06)2 = $11.264 CV0 for amt in yr 2 = 13.3% per year (b) Amount greater than inflation rate: 9.08% per year 14. $1 would increase to $1.000(1 + 0. Let x = annual increase. if = 4% per month and i = 0.7 CV0 for amt in yr 1 = 13.560.56. 16.SOLUTIONS TO SELECTED PROBLEMS Student: You should work the problem completely before referring to the solution.07)10 = $19. 1.035 f = 3. 28.1 Inflated dollars are converted into constant value dollars by dividing by one plus the inflation rate per period for however many periods are involved.3 – 2. 4. 25.000/(1 + 0.48% per month 14. 46.5% per month 0.093 = 1 + x x = 9. 40.189 Chapter 14 1 .27 + (0.005)(f) 1.19 Buying power = 1.13 if = 0.000/(1 + 0.

4916) + 5000(0.17.10%.5) = -31.25 (a) New yield = 2.10%.4) = 1.5) + 5000(P/F.1 + 0.5) + 7000(P/F.10 + 0.14.000 – 19.92 14.9009) = $1.03) = 17.6209) = $-134.000(3.42% Required future amt = 1.34 Future amount is equal to a return of if on its investment if = (0.9%.900.900 Company will get more.000.000.6209) = $-115.10 + 0.184 (1 + f)7 = 1.000 – 19.000(3.10%.42%.591 Select machine B 14.5) = -48.3%.000(P/A.10)(0.000 – 28.000(P/A.5) + 5000(P/F.3%.000(0.21.7908) + 5000(0.000(P/A.02 = 5.16 + 3.28 740.44% per year 14.f.7) (F/P.06 + (0.37 if = 0.000 – 19.22 (a) PWA = -31.5) + 7000(P/F.04)(0.18% per year (b) Interest received = 25.03) = 13.000(0.000 – 28.3%.5) = -48.3%.000 – 28.4916) + 7000(0.9% AW = 183.3% PWA = -31.0518/12) = $107.000(F/P. make the investment.13.13.000.13.15 + 0.000(3.184 f = 2.5) = 183. 14.000 – 28.000(A/P. cost will be $40.06) = 21.5) = -31.5356) = $-110.000(3.087 PWB = -48.13.000(F/P.15)(0.7) = 1.10%. 14.03 + (0.34846) Chapter 14 2 .31 In constant-value dollars.5356) = $-126.038 PWB = -48.679 Select Machine B (b) if = 0.000 = 625.f.000 – 19.04) + 0.7908) + 7000(0.000(P/A.03 + (0.000(1.

000(0.025.19.12%.1348) = $-114.12) – 5.84% AWA = -150.84%.= $63.000 + 40.8%.315 AWB = -1. F = 15.000(0.000(0.000(A/F.000(1 + 0.19. use if if = 0.06121) = $15.84%.12%.000(A/P.07 + (0.918(A/F.46 Answer is (d) 14.000 + 40.768 14.000 = $-208.000(1.000(0.000 + 40.07) = 19.27741) – 70.49 Answer is (a) Chapter 14 3 .3) = 15.43 (a) For CV dollars.000 Select Machine A (b) For then-current dollars.5) = -150.000(A/P.5) – 70.15741) = $-105.3332) – 70.000(0.000 = $-128.40 Find amount needed at 2% inflation rate and then find A using market rate.000 + 40.12)(0.1984) – 5.000(0.918 A = 15.30803) = $4903 14.025.5) – 70.360 Select Machine A 14.12 + 0.02)3 = 15.5) = -150.588 AWB = -1.918(0.000(A/F. use i = 12% per year AWA = -150.

3(F/P.2%.SOLUTIONS TO SELECTED PROBLEMS Student: You should work the problem completely before referring to the solution.000) = $18.125 15.1 15.4 Property cost: (100 X 150)(2. 13.p. 4. 19.773 %/year Predicted index value in 2002 = 6221(F/P.6 Cost = 1200_ (78. 6.5 15. and 51 15.2. 37.22 (a) 450.1(F/P.25 = 1.50) = $37.000) = $91.504 (b) Since x > 1.625 Furnishings: (6)(3. 22.6 = 368.773%. 43. The design-to-cost approach is just the opposite.8) 1.75)(125) = $215.10 (a) First find the percentage increase (p%) between 1990 and 2000. 40.6) = 1203.10) 1.31467 = (1+p)10 p% increase = 2.690 15. 10.0.2) = 6571 (b) Difference = 6571 – 6538 = 33 15.7143x x = 1. 49.000(60. CHAPTER 15 Solutions included for problems: 2.000 = 200.009046 p % increase = 0. 6221 = 4732 (F/P.0747 = (1+p)1/8 (1+p) = 1.000(450/250)0.2 The bottom-up approach uses price as output and cost estimates as inputs. 16.095 1027. 15.000 Total cost: $271. 28.32 = $15.000/35.16 Index in 2005 = 1068.500 House cost: (50 X 46)(.19 C2 = 13.p.000)x 2. there is diseconomy of scale and the larger CFM capacity is Chapter 15 1 . 31.13 Find the percentage increase between 1994 and 2002. 46. 25. 34. 395.905 % per year 15.

000) = $16.2 + 0.34 Indirect cost rate for 1 = 50.000/5.000 sq.000 = $166.25 (a) C2 = (1 million)(3)0.41(1.350 Final assembly: DLC is basis.000 = $187.23 Actual charge = 0.1) = (1 million)(1. C2002 = C1 (6538/4732) = $200.23 (12.25) 1.540 15.35 Actual charge = 16. Cost -capacity exponent is 0.00 per hour 200 Indirect cost rate for 3 = 150.5 + 0.246)(1.more expensive than a linear relation would be.60.67 per hour 1.48) = $5.1) = $1.000 = $500.60 C1 = $145.28 ENR construction cost index ratio is (6538/4732).95 CT in 1994: 1.2(1.37 million Estimate was $630.35(1.41 million Update with the cost index to now.75 (1.35 Actual charge = 16.000)0. rate is $16.145 Update C1 with cost index.428 15.000 = $ 83.05 million 15. Let C1 = cost of 5.000 = C1 (10.35(480) = $7. rate is $0. CT now: 3.460) = $2.848 Subassemblies: DLH is basis. m.33 per hour 600 Indirect cost rate for 2 = 100. 15.50 per hour 800 Indirect cost rate for 4 = 200.866 Chapter 15 2 .37 Housing: DLH is basis.200 15.31 h = 1 + 0.41 (3713/2509) = 3.6 = (3)x x = 0. rate is $16.95) = $3. structure in 1990 C2 in 1990 = $220.000 low (b) 2 million = (1 million)(3)x(1.25 = 1.

750 = 75. basis level.65 = $25.300 = $7.483(35.74 per second Actual charges = (rate)(basis level) Line DLH basis Old cycle time New cycle time 10 $156.75 + 3.000/45.25 + 5.000(1164/1092) (2)0.483(20.905 Total actual charges: $1.000 53. 15.584 = $-268.49 89. [15.00/51.584 Allocation variance = 800.40 DLC average rate = (1.7].660 3.136 11 99.000) = 121.584 15.000/97.394 148.000(I2 /1027) I2 = 1229 Answer is (a) 15. the rate for a department using automation to replace direct labor hours will increase in the computation 15.43 As the DL hours component decreases.15.443 34.000 – 1.068.80 per hour Old cycle time rate = $400.51 Costnow = 15.068 The actual charge patterns are significantly different for all 3 bases. will decrease.7 = $8.060 229.111 per second New cycle time rate = $400.000) = $ 69.752.080 117.164 217.46 DLH rate = $400. Thus.068.089 Answer is (b) Chapter 15 3 .45) /3 = $3.797 12___ 145. the denominator in Eq.483 per DLC $ Department 1: Department 2: 3.3 = $4.

17. 23.1 7.000 90.2 Book depreciation is used on internal financial records to reflect current capital investment in the asset. 11. 38. 16.4 Asset depreciation is a deductible amount in computing income taxes for a corporation. (d) Plot year versus book value in dollars for the table above Chapter 16 1 .900 65.000 9000 8100 7290 6561 Part (b) Depreciation rate____ 10 % 9 8. 14.SOLUTIONS TO SELECTED PROBLEMS Student: You should work the problem completely before referring to the solution.000 81. Thus PW or AW may become positive when the taxes due are lower.3 6.049 Part (a) Annual depreciation 0 $10. 20. 26. Tax depreciation is used to determine the annual taxdeductible amount. They are not necessarily the same amount. and 43 16.56 (c) Book value = $59.000 72. 41. 16.049 and market value = $24. 8. 29.8 Year 0 1 2 3 4 5 Book value $100.000. 35. so the taxes will be reduced. CHAPTER 16 Solutions included for problems: 2. 32. 4.610 59.

500 34.500 33.14 (a) B = $50.000 41.500 25. d = 0.S) = $34.500 50.500 8.000 Chapter 16 Year Depreciation Accumulated depreciation Book value 0 1 2 3 4 $8.000 37.000 37.500 12. d = 0.500 5.500 8.000 – 3(1250) = $8250 (c) d =1/n = 1/8 = 0.25 Year 0 1 2 3 4 Depreciation $12.500 12. n = 4.000 12.500 17.500 16.000.000 $50.500 $ 8.125 16.000 25.11 (a) Dt = (12.500 Accumulated depreciation $12. S = 0. (B .500 0 (b) S = $16.000 – 2000)/8 = $1250 (b) BV3 = 12.000 24.000 2 .25.500 8.000 Book value $50.16.000.500 12.

d = 0.335 44.112 3.151 Book value $50.667 5.555 1.0.000 16.2) for annual DDB depreciation.000.6667X(BV of previous year) Year 0 1 2 3 Depreciation Accumulated depreciation $33.704 $33. n = 3.t.335 11.6667 for DDB Annual depreciation = 0.3.17 (a) B = $50.16. Chapter 16 3 .851 (b) Use the function =DDB(50000.447 48.

062 10.000 16. 12 16.000 BV3 = 450.000 to $100.000.15 MACRS: d = 0. 2. n = 5 D t = 450.40 BVt = 25.547 7.000 – 3(90.000.875)1–1 = $21.29 Classical SL.000(0.20 of B = $25.000 BVt = 25.000 .000 5. …. ΣDt = 450.15(500.32000.10(500.75)t DDB: d = 2/5 = 0.125 D12 = $5.20 SL: dt = 0.400 = $129.000 D1 = 0. n = 10 years SL: d = 1/n = 1/10 DDB: d = 2/10 = 0.750 14.712) = $320.400 3.035 BV12 = $35.000 5.t(5.20 0.16.1.600 Chapter 16 4 .10 D1 = (B-S)/n = (500.26 B = $500.875)1 = $153.125(175.000 First-year tax depreciation amounts vary considerably from $40.000 15.000) = $50.875 BV1 = 175.5) for t = 1.000) = $100.5/12 = 0.000 10.000.25 BVt = 25.248 is larger than S = $32.20(500.240 1.000-320.000)/10 = $40.125 D1 = 0.12.944 0 1 2 3 4 5 16. 16.000 18.23 (a) d = 1.933 $25.t.000(0.000 D1 = dB = 0.000(0.000)(0.60)t Declining balance methods 125% SL 200% SL Year SL d 0.000 0 $25.000/5 = $90.000 15.000.910 5.248 (b) The 150% DB salvage value of $35.40 $25.000 20. S = $100.000 9.400 BV3 = $450.29 (cont) MACRS.25 0. after 3 years for n = 5 sum the rates in Table 16.000 D1 = dB = 0.000) Fixed rate: DB with d = 0.000 – 100.000) = $180.20 150% DB: d = 1.000(0.2. (c) =DDB(175000.5/10 = 0.000) = $75.

000(0.000. 16.000 Allowed depletion $480.020.41 For SL method.053.1749) = $6122.990.400 that is not removed by classical SL.000 1. So.000 448. not to exceed 50% of taxable income. Answer is (d) 16. BV at end of asset’s life MUST equal salvage value of $10.000 2. answer is (a) Chapter 16 5 .The difference is $50. Year 1 2 3 Gross income $3.500 50% of TI $750.500 16.49%.000 448.35 Percentage depletion for copper is 15% of gross income.000 500.32 16.000 % Depl @ 15% $480.000 1.38 Depreciation factor is 17.000.200.43 Straight line rate is always used as the reference. D = 35. Answer is (c) 16.000. Use GI = (tons)($/pound)(2000 pounds/ton).000 1.000 7.

34) = $213.346) = $19.860 % error with graduated tax = 0% Company 2 Taxes = 236. 9.28(x – 68.10(7000) + 0. 45.000 – 148.15(21.000 Taxes = $75.000 17. 36.860 Company 2 TI = $236.800) = 14.34(629.SOLUTIONS TO SELECTED PROBLEMS Student: You should work the problem completely before referring to the solution.500.900 + 0. 57.34) = 0.200) = $21.000(0. CHAPTER 17 Solutions included for all or part of problems: 4.9 (a) GI = 98. 39.2% (c) Company 1 Taxes = (TI)(Te) = 629.26% 75. 54. 21.000(0.500 TI = 105.28(x – 68.28(TI – 26.5 million = 14. and 60 17.400.25(40. 33.15(21. 42.000 = 21. 18.076)(0.290 (b) Co.800) 0.000) – 754.860/1.000(0. 2: 213.400) + 0.000 = 9. 12.211 $19.000 = $629.346/98.240 % error = + 6.500 – 10.211 = 0.390 TI = $2.4 million Taxes = 2.000 Taxes = 113.9(21.000 + 31.290/820.10(7000) + 0.500 = $95.346 (b) 21.000 Taxes = 0.28(26.400) + 0.4 (a) Company 1 TI = (1. 24. 27.465 Chapter 17 1 .6% 17. 48.000) = $213.000 + 7500 = $105.400) + 0.000 – 335. 51.25(40.390) = $936.076 + (1 – 0. 6.200) = 700 + 3210 + 10.34) = $80.28x = 24. 1: Co.100 + 0.400) + 0.8% (c) Reduced taxes = 0. 29. 15.6 Te = 0.010 + 0.

610. Chapter 17 2 .000 50.125.920 9.000.12 Depreciation is used to find TI.000 16.375 Let y = new total of exemptions and deductions TI = 87.955(0.000)(0.128 17.000 50.080 79.37925)]/(1 – 0.955 17.000.400 Taxes 12.x = $87.400 (b) Year 0 1 2 P or (GI – E) S D –80.37925) = $2.000 – 25.500 – y y = $18.000 – (1.272 CFAT -$80.37925 CFBT = [2.15 CFBT = CFAT + taxes = [CFAT – D(Te)]/(1 – Te) Te = 0.000 38.400 25. 17.000 24. Select the SL method with n = 5 years. 17.500 to $18. and as such is not a direct reduction when determining either CFBT or CFAT.18 (a) BV2 = 80.000 – 16.375 = 105. Depreciation is not a true cash flow.045 + 0.21 Here Taxes = (CFBT – depr)(tax rate).600 = $38. which is a 73% increase.000 37.125 Total must increase from $10.600 TI 34.35) = 0.

1481 0.000 3 TS____ $11.i.000 TI = CG + DR = $30.664 35.848 5.935 4.000(0.199 14. (b) TSt = Dt(0.000 DR = 0.560 11. PWTS = $27.0741 Depr $26.963 Year.2(100.t) t=1 Select the method that maximizes PWTS.928 CL = 5000 – 500 = $4500 TI = $–4500 Tax savings = 0.000) = $20.490 .42).t 1 2 3 4 17.976 2.40(–4500) = $–1800 CG = $10.000 Taxes = 30.4445 0.27 (a) (b) Chapter 17 d 0.3333 0.17.4) = $12.24 (a) t=n PWTS = (tax savings in year t)(P/F.

33 In brief.14%.14%. net all short term.36 0.29 (a) BV2 = 40. Sell NE now.42 (a) PWA = -15.10) + 3000(P/F.14%.200 DR = 21. Finally.333 17.12(1-tax rate) Tax rate = 0.476 Chapter 17 4 .000 – 19.35) = $2100 (b) CFAT = 20.000 .26%.000(0.08 = 0.000 – 3000(P/A.000) = $19.0.10) = $-29. 17.10) + 5000(P/F.000 Taxes = 6.000 – 3000 + 21.000 – 2100 = $35.17.10) = $-28.000 – 1500(P/A.52(40.200 = $1800 TI = GI – E – D + DR = $6.839 PWB = -22. retain TSE for the 4 years and then dispose of it. 17. net the gains and losses to determine what is reported on the return and how it is taxed.900 17. then all long term gains and losses. the incremental investment is not justified.39 Since MARR = 25% exceeds the incremental i* of 17.14%.

7%.000 Year 0 1 2 3 4 5 6 P or S $–22.10) = $–18.7%.000 – 900(P/A.42 (cont) P or S $–15.756 Select machine B (c) Machine A Year 0 1 2 3 4 5 6 7 8 9 10 10 17.7%.000 1450 2770 1362 517 517 –116 .7%.Select B with a slightly smaller PW value.10) + 3000(P/F.5) = $2100 CFAT = –3000 + 2100 = $–900 PWA = –15.000 0 900 -60 -636 -636 -1068 -1500 -1500 -1500 -1500 1500 CFAT $–22.000 – 3.000 + 100(P/A.10) = $–19.000)/10 = $1200 Tax savings = 4200(0. (b) Machine A Annual depreciation = (15.10) + 5000(P/F.796 Machine B Annual depreciation = $1700 Tax savings = $1600 CFAT = –1500 + 1600 = $100 PWB = –22.000 Chapter 17 3000 AOC $3000 3000 3000 3000 3000 3000 3000 3000 3000 3000 - AOC $1500 1500 1500 1500 1500 1500 Depr Tax savings $3000 $3000 4800 3900 2880 2940 1728 2364 1728 2364 864 1932 0 1500 0 1500 0 1500 0 1500 –1500 Machine B Depr $4400 7040 4224 2534 2534 1268 5 Tax savings $2950 4270 2862 2017 2017 1384 CFAT $–15.

48 (a) From Problem 17.7 8 9 10 10 5000 1500 1500 1500 1500 - 0 0 0 0 - 750 750 750 750 –2500 –750 –750 –750 –750 2500 PWA = $–18.850.75%. CFATA = $–900 CFATB = $+100 Use a spreadsheet to find the incremental ROR and to determine the PW of incremental CFAT versus incremental i values.45 (b–1 and 2) 17. 17.536. If MARR < 9. as above. Chapter 17 6 . otherwise select A. select B. PWB = $–16.42(b) for years 1 through 10. Select machine B.

5) – 160.500(0. Decision was incorrect.200 AWD = -50.10%. MARR 5% 9 10 12 Select B B A A 17.32) = $63.000 +150.500) = $187.500 CL from sale of D = BV7 – Market value = $137.200 = $–109.500 + 160.51 Defender Annual SL depreciation = 450.000)(0.000 + 63. year 0 = 137. Chapter 17 7 .000 Annual tax saving = (65.32) = $68.000)(0.32) = $44.000(A/P.800 AWC = $-184.500 Annual tax savings = (37.(b) Use the PW vs.500 Tax savings from CL. incremental i plot to select between A and B.000 – 7(37.000 Challenger annual SL depreciation = $65.827 Select the defender.000 /12 = $37.990 Challenger Book value of D = 450.

54 Succession options Option 1 2 3 Defender AWD1 = $300.000 – (–112.696 – 94.17.000 Year 2: CFAT = -120.676) = $368.000 – 355.000 – (-88.740 + 51.480 + 140.57 (a) Before taxes: Let RV = 0 to start and establish CFAT column and AW of CFAT series.696 AWC3 = $+51.000 3 51.216) = $114. If tax rate is 0%. and 3 years of ownership.000) = $592.000 + 400.676 Year 3: CFAT = -120. Year Option 1 2 3 AW___ 1 $–240.000 + 200.000 + 600.000 $–254.760 Year 1: CFAT = –120.000 $–288.668.000 – 118.000 24.640 = $–320.000 AWC2 = $+24.000 – 266.740 Selection of best option: Replace now with the challenger.000 Challenger No tax effect if defender is cancelled. RV = $415.740 17.000 – (-34.240 = $–253. Calculate CFAT for 1.696 24.000 Defender 2 years 1 0 Challenger 1 year 2 3 AWD2 = $240. 2.740 51.720 = $–97.000 TI = –120.493 2 –300. Year 1: Year 2: Year 3: TI = –120.216 AWC1 = $– 288. Chapter 17 8 .000 $–240.740 51.600 + 222.640 + 66.360 TI = –120. Tax rate is 35%.

taxes and D from Example 17. Use i = 0.35.10 and T e = 0. Chapter 17 9 .60 (a) Take TI.3.17.

Chapter 17 10 .

701. 29. 25.10) + 145. New construction cost = 70(0.10%.779 20 tons/day: PW = $–140. 4. 10. 13. 24. CHAPTER 18 Solutions included for problems: 1. 20.441 -11.1 10 tons/day: PW = – 62.783 -11.90) = $63 and lease at $2. 19.75 PWBuild = $–73.558.7 (a) Breakeven number of vacation days per year is x.10) – 1500 + 150x – (50/30) (1.20%.000(A/F.50(10)(200)(P/A.20%.75 + 148x Days. 22. 31. AWcabin = –13.8) = $–100.2) = $–75. and 34 18.021 1 Selected Trailer Trailer .8) – 4(8)(200)(P/A.000 – 70(1000) + 120.6)](1.000 + 1500P/F.000(A/P.8) – 0.10) – 1.000(A/F. AWcabin = –130.10) + 20.50)(12)(1000)(P/A. The decision is sensitive.750 + 125x – [300/30(0. 16.191 AWtrailer= –12.10%.3) = $-80.94 days (Use x = 20 days per year) (b) Determine AW for 12.5)(12)(1000) – (2.417 Select build.000(P/F. 7. 16. x 12 16 Chapter 18 AWcabin $-11. and 28 days.10%.10%.000(A/P.20)x AWtrailer = –75.4 PWLease = –(2.10%. 18.10%.834 Lease the space.10%.878 PWBuild = –80.257 30 tons/day: PW = $–213.SOLUTIONS TO SELECTED PROBLEMS Student: You should work the problem completely before referring to the solution.556 18.556 PWLease = $–83.25 + 105x AWtrailer $-11.20)x AWcabin = AWtrailer x = 19.

20 24 28 -10.599 -10.601 -10. there are only a few dollars difference for the various n values around the n* value for each gradient value.007 .10 For spreadsheet analysis. Chapter 18 2 .181 .9415 -10. especially for x = 20. use the PMT functions to obtain the AW for each n value for each G amount. The AW curves are quite flat.9761 Cabin Cabin Cabin Each pair of AW values are close to each other. 18.

000(80) = 800 million AW = –(0.000(40) = 400 million AW = –(0.16 per 1000 liters Spray Method Pessimistic .16 Water/wastewater cost = (0.000.100 liters Water required = 10. unless optimistic estimate of 40 L is the actual.22251) + 24.18.10) – 100 = $–64.16/1000)(400.624 (c) Revenue sensitivity: AW = –32.000.000.5 seconds (b) E(time) = 20 seconds Chapter 18 3 .000.000 Optimistic .00 X 109) = $–160.425 (b) AOC sensitivity: AW = –AOC + 21.000) = $–128.12 + 0.000.000(40)(0.000 Most Likely . 18.16/1000)(1.376 + Revenue 18.16/1000) – 2000(A/P.0 billion AW = –(0.80 liters Water required = 10.000) = $–64.15%.13 (a) First cost sensitivity: AW = –P(0.04) per 1000 liters = 0.19 (a) E(time) = (1/4)(10 + 20 + 30 + 70) = 32.000(100) = 1.16/1000)(800.000 Immersion Method AW = –10.40 liters Water required = 10.499 Immersion method is cheaper.000.

25 E(revenue) = $222.12%.31 D3: Top: E(value) = $30 Bottom: E(value) = $10 Select top at D3 for $30 D1: Top: Value at D1 = 77-50 = $27 Bottom: 90 – 80 = $10 Select top at D1 for $27 D2: Top: E(value) = $66 Middle: E(value) = 0.000 + 222.034 Construct mock mountain.31 (cont) At D2.29 AW = annual loan payment + (damage) x P(rainfall amount or greater) Subscript on AW indicates the rainfall amount.00 = $–42.The 70 second estimate does increase the mean significantly.261 AW3.22 E(i) = 103/20 = 5.4) + (P/F.848 AW3.15% 18.5(200 – 100) = $50 Bottom: E(value) = $50 18.000(A/P. 18.12%.000 = $95. 18. value = E(value) – investment Top: 66 – 25 = $41 Middle: 50 – 30 = $20 Bottom: 50 – 20 = $30 Select top at D2 for $41 Chapter 18 4 .12%.571. AW2.571 AW2.25 = $–35.392 Build a wall to protect against a rainfall of 2.00 = $–54.25 inches with an expected AW of $–35.10) – 25.174 AW2. 18.10) – 56.8)] (A/P.000 E(AW) = –375.50 = $–43.25 = $–61.000[(P/F.12%.

5 .960 Conclusion at D2: Select no expansion option (c) Chapter 18 Complete foldback to D1. $100.744 (PW for D2. $175.000) = $4352 (PW for D2.000) = $21.Conclusion: Select D2 path and choose top branch ($25 investment) 18. (b) Expansion option (PW for D2.000 = $86.34 (a) Construct the decision tree.960 E(PW) = $86. $140.180 E(PW) = $28.34 (cont) No expansion option (PW for D2.000) = $52.700 18. $120.

(d) Chapter 18 The return would increase on the initial investment.Produce option. E(PW) = $86.55 (228.45(PW sales down) = –450.937 Buy option.45(195.000 + 0.000 + 0. but the expected return is larger for produce option than buy.377 Conclusion: Both returns are less than 15%. 6 .660) = $–236.320) + 0.55(PW sales up) + 0.063 E(PW for produce) = $–47. but would increase faster for the produce option. D1 At D2.960 E(PW for buy) = cost + E(PW of sales cash flows) = –450. D1 E(PW of cash flows) = $202.

Probability estimates for < 1000 and /or > 2000 units per week. center points on cells.03125 0.7 – 0. e.9375 5 etc.7 9 0. 5.75 3 0.3. f(mode) = f(M) = 2 = 2 5-2 3 F(mode) = F(M) = 5-2 = 1 5-2 19. 1500. 2 or 3) = F(N (a) Xi F(Xi) (b) P(6 X 10) = F(10) – F(3) = 1. 17.8 (b) P(N = 1.0 1 0.96875 P(L) is a triangular distribution with the mode at 5.5) N P(N) F(N) N N = 1.6 = 0.4 P(X = 4. 800.5 (a) P(N) = (0.5 2 0.0 No sample values in the 50 have X = 7 or 8.7 = 0. A larger sample is needed to observe all values of X.9 10 1.4 3 0.6 6 0.875 2 0. If discrete.0 – 0.1 (c) P(X = 7 or 8) = F(8) – F(6) = 0. is discrete 1 0. 14..0625 0.875 4 0. 0.SOLUTIONS TO SELECTED PROBLEMS Student: You should work the problem completely before referring to the solution. 2.7 – 0.2 Needed or assumed information to be able to calculate an expected value: 1. 5 or 6) = F(6) – F(3) = 0. 11.g. and 2200 units per week..2.. CHAPTER 19 Solutions included for problems: 2.25 0. 3.125 0.2 3) = 0.. 19. Treat output as discrete or continuous variable. 8. Chapter 19 1 . and 20 19.6 = 0.5 0.

02 25 values. Assume you want 25 values.3.30 0.4 . X 1 2 3 6 9 10 P(X) .11 Use the steps in Section 19. calculate the probability of each as count/25. and plot the probability distribution for grades A through I.14 (cont) (b) Xbar ± 1s is 4.8 1. Compare these probabilities with P(G = g) above.00 G=I -Steps 3 and 4: Develop a scheme for selecting the RNs from Table 19-2.6) = 11. Chapter 19 2 2 fX 10 40 90 180 810 500 1630 . For example.14 (a) Convert P(X) data to frequency values to determine s. Step 5: Count the number of grades A through D.2 .2 .6 2 2 Sample variance: s = 1630 – 50 (4.70 G=B 30-69 F(G = g) = 0. are in this range.00 0.42 19.1 XP(X) .1 .00 G=D 90-99 1. Repeat for sample of 25 grades.2 .20 0. As an illustration. assume the probabilities that are assigned by a student are: P(G = g) = 0.19.00 G=A G=B G=C G=D G=F G=I Steps 1 and 2: The F(G) and RN assignment are: RNs 0. the value of G is B.6 1. if RN1 = 39. 19.30 G=A 00-29 0.00 G=F -1.2 .90 G=C 70-89 1.18 and 8.42 = 1.40 0.2 .6 .6 2 f 10 10 10 5 10 5 X 1 4 9 36 81 100 Sample average: Xbar = 4.6 ± 3.67 49 49 s = 3. or 50%.10 0.0 4.

6 ± 6. the correct answer.20 (cont) Chapter 19 3 .0.015625) + 7(.17 P(N) = (0.03125) + 6(. (This tool may not be available on all spreadsheets. are in this range. 19.20 Use the spreadsheet Random Number Generator (RNG) on the tools toolbar to generate CFAT values in column D from a normal distribution with = $2040 and σ = $500.44 All 50 values.003906) + 9(.5)N E(N) = 1(.625) + 5(.001953) + 10(. or 100%.24 and 11.99+ The limit to the series N(0.125) + 4(0. = 1. 19.5) + 2(.) 19. The RNG screen image is shown below.0078125) + 8(..0009766) + .Xbar ± 2s is 4.84 = –2.5)N is 2.25) + 3(.

For risk. and the distribution of PW obtained. accept the plan if PW > $0 at MARR of 7% per year. the result depends on the preponderance of positive PW values from the simulation. Chapter 19 4 .The decision to accept the plan uses the logic: Conclusion: For certainty.