ASSIGNMENT

Feasibility Study – 2020

1. A new engineer wants to save for down payment on a house. The initial deposit in $685, and $375
is deposited at the end of each month. The savings account earns interest at an annual nominal rate
of 6% with monthly compounding. How much is on deposit after 48 months?

2. Upon the birth of his first child, Dick Jones decided to establish a saving account to partly pay for
his son’s education. He plans to deposit $20 per month in the account, beginning when the boy is
13 months old. The savings and loan association has a current interest policy of 6% per annum,
compounded monthly, paid quarterly. Assuming no change in the interest rate, how much will be
in the savings account when Dick’s son becomes 16 years old?

3. A bank recently announced an “instant cash” plan for holders of its bank credit cards. A cardholders
may receive cash from the bank up to a preset limit (about $500). There is a special charge of 4%
made at the time the “instant cash” is sent to the cardholders. The debt may be repaid in monthly
installments. Each month the bank charge 1.5 % on the unpaid balance. The monthly payment,
including interest, may be as little as $10. Thus, for $150 of “instant cash”, an initial charge of $6
is made and added to the balance due. Assume the cardholder makes a monthly payment of $10
(this includes both principal and interest). How many months are required to repay the debts?

4. A diesel manufacturer is considering the two alternative production machines, specific data are as
follow:

Alt.1 Alt. 2
Initial cost $50,000 $75,000
Estimated salvage value at end of useful life $10,000 $12,000
Useful life of equipment in years 7 13
The manufacturer uses an interest rate of 8% and wants to use PW method to compare these
alternatives over an analysis period of 10 years.
Alt. 1 Alt.2
Estimated market value, end of 10 years analysis period $20,000 $15,000

5. An investor paid $8000 to a consulting firm to analyze what be might do with a small parcel of
land on the edge of town that can be bought for $30,000. In the report, the consultants suggested
four alternatives:

Alternatives Total investment Uniform Net Terminal Value

Including Land* Annual Benefit at End of 20 yr
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A Do nothing $ 0 $ 0 $ 0
B Vegetable market 50,000 5,100 30,000
C Gas station 95,000 10,500 30,000
D Small motel 350,000 36,000 150,000
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*Includes the land and structures but does not include the $8000 fee to the consulting firm
Assuming 10% is the minimum attractive rate of return, what should the investor do?