Progressive examples

CHAPTER 2
1)
P 200 F 200 Year Time
i 10% i 10% 2012 0
n 3 n 3 2013 1
F3 ($266.20) P-4 ($150.26) 2014 2
2015 3
2) 2016 4
A 50 P 200 P 10%
i 10% i 10% A
n 5 n 5 Goal seek
P ($189.54) A ($52.76) Year Time
2012 0
3) 2013 1
A 50 F ($305.26) 2014 2
i 10% i 10% 2015 3
n 5 n 5 2016 4
F ($305.26) A $50.00 P 10%
G -26.09791
4)
In $1 milllion units G -25 5)
A 50
g 0.12
6) i 0.1
YEAR CASH FLOW P 152.8
0 0 F ($932.86)
1 -5000 15
2 -5000 -5000
3 -5000 100000
4 -5000
5 -5000
6 -5000
7 -5000
8 -5000
9 -5000
10 -5000
11 -5000
12 -5000
13 -5000
14 -5000
15 95000
Using rate 4%
using IRR 4%
 CHAPTER 4

Investment
100 1)
100 Initial amount 1000
100 i 14.24
100 CP of year 14.24
0 CP of month 1.1866666667
$316.99 Amount after one month 1041.8666667
($100.00) CP of day 0.0390136986

Investment 2)
100 Month Amount Monthly in
73.9020903085694 0 1000
47.8041806171387 1 1000 11.87
21.7062709257081 2 1041.8666667 26.04
-4.39163876572253 3 1080.8666667 27.66
$200.00 4 1146.7802467 29.28
5 1214.3350748 30.9
6 1253.3350748 32.52
7 1323.5431182 34.14
n 5 8 1395.4993418 35.76
I 10% 9 1469.2472754 37.38
10 1544.8315326 39
11 1622.2978377 40.62
12 1701.6930539 42.24

i per month 5%
i per year 0.782933
3)
A ($49.57)
Effective i per year 15.207160626
 CHAPTER 5

transfer fee rate 3 Sea Water

AOC
UPW
Salvage value
First cost
i
PW OF AOC
Fee Amount due 2.49 PW OF UPW
0 1000 PW of salvage
30 1041.87 Total PW
39 1106.907
39 1147.527 2)
39 1215.06
39 1284.235 Year
39 1324.855 0
39 1396.683 1
39 1470.259 2
39 1545.627 3
39 1622.832 4
39 1701.918 5
39 1782.933 6
7
8
9
10

3)
PW of SW
PW of GW
AW of SW
AW OF GW
CC of SW
CC of GW
 Sea Water Ground water

0.5 AOC 0.3

1.44 UPW 1.8
1 Salvage value 2.2
20 First cost 22
12% i 12%
$ (2.83) PW OF AOC $ (1.70)
$ (8.14) PW OF UPW $ (10.17)
$ (0.32) PW of salvage $ (0.71)
$30.64 Total PW $33.16

10 years 5 YEARS
SW GW YEAR SW GW
20 22 0 $20.00 $22.00
1.94 2.1 1 $1.94 $2.10
1.94 2.1 2 $1.94 $2.10
1.94 2.1 3 $1.94 $2.10
1.94 2.1 4 $1.94 $2.10
11.94 2.1 5 $0.94 $0.10
1.94 2.1 $26.43 $28.44
1.94 2.1
1.94 2.1
1.94 2.1
0.94 0.1
36.3137279957124% $33.22

-$36.31
-$33.16
$6.43
$5.87
$53.55
$48.91
 CHAPTER 9

1) Rate 3%
Open Trench
Distance(miles) 6.8
Distance(foot) 35904
Cost per foot 25132800
Construction Costs per month 250000
Construction Costs per year 3000000
Ancillary expenses per month 310,000
Ancillary expenses per year 3720000
Cash Flows
year Costs Benefits
0 25132800
1 3000000 3720000
2 3000000 3720000
3
PW $30,873,209.09 $7,118,107.27
AW $ (1,199,902.54) $ (276,648.76)

ΔC $ (1,171,300.08)
ΔB $ (164,514.67)
ΔB/C 0.140454759739228
Trench Tunnel is selected
2) 0.03
Location 2 Location 1
Land Cost 19.3 28.5
Facility First Cost 460 446
AW 14.379 14.235
Benefits 19 23
B/C 1.32137144446763 1.615736
Acceptable Yes Yes
Comparison 1 to 2
ΔC 0.144
ΔB 4
ΔB/C 27.7777777777778
Location 1 is selected
 Tunnel Trench
6.3
33264
55070400
175000
2100000
85,000
1020000

Costs Benefits
55070400
2100000 1020000
2100000 1020000
2100000 1020000
$61,010,483.85 $2,885,183.58
$ (2,371,202.62) $ (112,134.09)

Location 1 Location 3
35
446
14.43
14
0.970201
No
 CHAPTER 11

Interest ra 15% ESL First cost 38

Year Market ValAoC Capital Recovery AW of AOC Total AW

1 25 -3.4 25 -3.4 21.6
2 18.75 -3.74 9.375 -3.57 5.805
3 14.0625 -4.114 4.6875 -3.7513333333 0.93616666667
4 10.54688 -4.5254 2.63671875 -3.94485 -1.30813125
5 7.910156 -4.97794 1.58203125 -4.151468 -2.56943675
6 5.932617 -5.475734 0.98876953125 -4.372179 -3.3834094688
7 4.449463 -6.0233074 0.6356375558036 -4.6080544857 -3.9724169299
8 3.337097 -6.62563814000001 0.4171371459961 -4.8602524425 -4.4431152965
9 2.502823 -7.28820195400001 0.2780914306641 -5.1300246104 -4.8519331798
10 1.877117 -8.01702214940001 0.1877117156982 -5.4187243643 -5.2310126486
11 1.407838 -8.81872436434001 0.1279852607033 -5.7278152734 -5.5998300127
12 1.055878 -9.70059680077401 0.0879898667336 -6.0588804007 -5.970890534

Marginal
Year Market ValLoss in Market value Loss interest AOC Marginal Cost AW of marginal Cost
1 25 -13 -5.7 -3.4 -22.1 -22.1
2 18.75 -6.25 -3.75 -3.74 -13.74 -17.92
3 14.0625 -4.6875 -2.8125 -4.114 -11.614 -15.818
4 10.54688 -3.515625 -2.109375 -4.5254 -10.1504 -14.4011
5 7.910156 -2.63671875 -1.58203125 -4.97794 -9.19669 -13.36022
6 5.932617 -1.9775390625 -1.1865234375 -5.475734 -8.6397965 -12.57348
7 4.449463 -1.483154296875 -0.889892578125 -6.0233074 -8.396354275 -11.97675
8 3.337097 -1.11236572265625 -0.6674194335938 -6.62563814 -8.4054232963 -11.53033
9 2.502823 -0.834274291992188 -0.5005645751953 -7.288201954 -8.6230408212 -11.2073
10 1.877117 -0.625705718994141 -0.3754234313965 -8.0170221494 -9.0181512998 -10.98839
11 1.407838 -0.469279289245606 -0.2815675735474 -8.8187243643 -9.5695712271 -10.8594
12 1.055878 -0.351959466934204 -0.2111756801605 -9.7005968008 -10.263731948 -10.80976

2)
Interest ra 15% Market value 22

Year Market valAOC Capital Recovery AW of AOC Total AW

1 22 -5.2 22 -5.2 16.8
2 22 -6.4 11 -5.8 5.2
3 22 -7.6 7.3333333333333 -6.4 0.93333333333
4 22 -8.8 5.5 -7 -1.5
 5 18 -10 3.6 -7.6 -4
6 18 -11.2 3 -8.2 -5.2

Keep kiln one more year

3)
Time in service
Defender Challenger AW
Option PT GH 1 2 3 4
A 1 5 -8.5 -14.21 -14.21 -14.21
B 2 4 -9.06 -9.06 -15.08 -15.08
C 3 3 -9.59 -9.59 -9.59 -16.31
D 4 2 -1.49 -1.49 -1.49 -1.49
E 5 1 -11.16 -11.16 -11.16 -11.16
F 6 0 -11.47 -11.47 -11.47 -11.47
AW of marginal Cost
 Rate 15%
5 6 PW
-14.21 -14.21 -79.55
-15.08 -15.08 -78.44
-16.31 -16.31 -77.7
-18.21 -18.21 -42.38
-11.16 -22.1 -77.9
-11.47 -11.47 -68.82
 CHAPTER 1 CHAPTER 2

Cost of Electricity(present) 0.1027 i for A

Cost of Electricity(previous) 0.1022 i for B
Electricity Generated 5.052 i for C
Cost 2.526 i for D(simple)
i for D(COMPOUND)
a)
Start
End
b)
Start per year
End(F32)
END(F70)
c)
Start per year
End(F65)
d)
Start
End(simple)
End(compound)
 CHAPTER 3

$ 0.06 Cash Flow i 7%

$ 0.06 year Land Parks
$ 0.15 0 4000000 0
$ 780.00 1 3000000 0
$ 143,213.70 2 2250000 0
3 1687500 0
$ 24.00 4 1265625 550000
$ (132,730,083,818.24) 5 949218.8 650000
6 750000
$ 2,000.00 P of land $11,788,797.23
$ (26,361.59) P of Parks $1,292,327.15
$ 241,320.65 TOTAL P $13,081,124.38

$ 300,000.00 Amount to raise in year 1 an2 $ (5,575,787.10)

$ (17,633,574,774.14) Amount for next 3 years $ (15,657,426.95)
A for 3 years $4,870,268.73
$ 200.00
$ 560.00
$ 286,627.39
CHAPTER 4

future worth values if sold at $363,000

Plan A analysis: 30-year fixed-rate loan

Money required for closing costs Annual Worth (Loan)

Up-front fees $ 3,000.00 Interest Rate(year) $ 0.05
Down payment (i) $ 0.10 Interest Rate(Mon) $ 0.00
Price of House $ 330,000.00 Loan $ 297,000.00
Down payment $ 33,000.00 Duration (M) $ 360.00
Total $ 36,000.00 Annual Payment $ (1,640.04)
Price of House (Sell) $ 363,000.00 Taxes & Ins. $ 500.00
Annual Worth $ (2,140.04)

Plan B analysis: 15-year fixed-rate loan

Money required for closing costs Annual Worth (Loan)

Up-front fees $ 3,000.00 Interest Rate(year) $ 0.05
Down payment (i) $ 0.10 Interest Rate(Mon) $ 0.00
Price of House $ 330,000.00 Loan $ 297,000.00
Down payment $ 33,000.00 Duration (M) $ 180.00
Total $ 36,000.00 Annual Payment $ (2,348.66)
Price of House(Sell) $ 363,000.00 Taxes & Ins. $ 500.00
Annual Worth $ (2,848.66)

Rent-Don’t Buy Plan Analysis

ROR (Y) Year Investement Interest

$ 0.06 $ - $ 40,000.00 $ -
$ 0.06 $ 1.00 $ 2,850.00 $ 2,400.00
$ 0.06 $ 2.00 $ 2,850.00 $ 2,715.00
$ 0.06 $ 3.00 $ 2,850.00 $ 3,048.90
$ 0.06 $ 4.00 $ 2,850.00 $ 3,402.83
$ 0.06 $ 5.00 $ 2,850.00 $ 3,778.00
$ 0.06 $ 6.00 $ 2,850.00 $ 4,175.68
$ 0.06 $ 7.00 $ 2,850.00 $ 4,597.23
 $ 0.06 $ 8.00 $ 2,850.00 $ 5,044.06
$ 0.06 $ 9.00 $ 2,850.00 $ 5,517.70
$ 0.06 $ 10.00 $ 2,850.00 $ 6,019.76

future worth values if sold at $231,000

Plan A analysis: 30-year fixed-rate loan

Money required for closing costs Annual Worth (Loan)

Up-front fees $ 3,000.00 Interest Rate(year) $ 0.05
Down payment (i) $ 0.10 Interest Rate(Mon) $ 0.00
Price of House $ 330,000.00 Loan $ 297,000.00
Down payment $ 33,000.00 Duration (M) $ 360.00
Total $ 36,000.00 Annual Payment $ (1,640.04)
Price of House (70%) $ 231,000.00 Taxes & Ins. $ 500.00
Annual Worth $ (2,140.04)

Plan B analysis: 15-year fixed-rate loan

Money required for closing costs Annual Worth (Loan)

Up-front fees $ 3,000.00 Interest Rate(year) $ 0.05
Down payment (i) $ 0.10 Interest Rate(Mon) $ 0.00
Price of House $ 330,000.00 Loan $ 297,000.00
Down payment $ 33,000.00 Duration (M) $ 180.00
Total $ 36,000.00 Annual Payment $ (2,348.66)
Price of House (70%) $ 231,000.00 Taxes & Ins. $ 500.00
Annual Worth $ (2,848.66)

Rent-Don’t Buy Plan Analysis

ROR (Y) Year Investement Interest

$ 0.06 $ - $ 40,000.00 $ -
$ 0.06 $ 1.00 $ 2,850.00 $ 2,400.00
$ 0.06 $ 2.00 $ 2,850.00 $ 2,715.00
$ 0.06 $ 3.00 $ 2,850.00 $ 3,048.90
$ 0.06 $ 4.00 $ 2,850.00 $ 3,402.83
$ 0.06 $ 5.00 $ 2,850.00 $ 3,778.00
$ 0.06 $ 6.00 $ 2,850.00 $ 4,175.68
$ 0.06 $ 7.00 $ 2,850.00 $ 4,597.23
$ 0.06 $ 8.00 $ 2,850.00 $ 5,044.06
$ 0.06 $ 9.00 $ 2,850.00 $ 5,517.70
$ 0.06 $ 10.00 $ 2,850.00 $ 6,019.76
 CHAPTER 5

Rate
Age
ear fixed-rate loan 61
62
rth (Loan) Future Worth 63
$ 0.05 Available Amount $ 40,000.00 64
$ 0.00 Left-Over FW $ (116,346.96) 65
$ 297,000.00 Selling Time (M) $ 120.00 66
$ 360.00 Remainder FW $ (7,277.59) 67
$ (1,640.04) Icreased-Value FW $ 119,613.61 68
$ 500.00 Future Worth $ 243,238.16 69
$ (2,140.04) ROR (M) $ 0.01 70
Available Amt(M) $ 2,850.00 71
72
73
ear fixed-rate loan 74
75
rth (Loan) Future Worth 76
$ 0.05 Available Amount $ 40,000.00 77
$ 0.00 Left-Over FW $ (220.08) 78
$ 297,000.00 Selling Time (M) $ 120.00 79
$ 180.00 Remainder FW $ (7,277.59) 80
$ (2,348.66) Icreased-Value FW $ 238,543.00 81
$ 500.00 Future Worth $ 246,040.67 82
$ (2,848.66) ROR (M) $ 0.01 83
Available Amt(M) $ 2,850.00 84
85

y Plan Analysis

Total Investments
$ 40,000.00
$ 45,250.00
$ 50,815.00
$ 56,713.90
$ 62,966.73
$ 69,594.74
$ 76,620.42
$ 84,067.65
 $ 91,961.71
$ 100,329.41
$ 109,199.17

ear fixed-rate loan

rth (Loan) Future Worth

$ 0.05 Available Amount $ 40,000.00
$ 0.00 Left-Over FW $ (116,346.96)
$ 297,000.00 Selling Time (M) $ 120.00
$ 360.00 Remainder FW $ (7,277.59)
$ (1,640.04) Icreased-Value FW $ (12,386.39)
$ 500.00 Future Worth $ 111,238.16
$ (2,140.04) ROR (M) $ 0.01
Available Amt(M) $ 2,850.00

ear fixed-rate loan

rth (Loan) Future Worth

$ 0.05 Available Amount $ 40,000.00
$ 0.00 Left-Over FW $ (220.08)
$ 297,000.00 Selling Time (M) $ 120.00
$ 180.00 Remainder FW $ (7,277.59)
$ (2,348.66) Icreased-Value FW $ 106,543.00
$ 500.00 Future Worth $ 114,040.67
$ (2,848.66) ROR (M) $ 0.01
Available Amt(M) $ 2,850.00

y Plan Analysis

Total Investments
$ 40,000.00
$ 45,250.00
$ 50,815.00
$ 56,713.90
$ 62,966.73
$ 69,594.74
$ 76,620.42
$ 84,067.65
$ 91,961.71
$ 100,329.41
$ 109,199.17
CHAPTER 5

6% Plan A Plan B Plan C Plan D

Remaining Reduced FW reduced Full FW full Self delayed FW delayed Spouse delayed
25 16800 0
24 16800 #VALUE!
23 16800 16800
22 16800 16800
21 16800 16800
20 16800 16800
19 16800 16800 24000 0 12000
18 16800 16800 24000 0 12000
17 16800 16800 24000 0 12000
16 16800 16800 24000 0 29,760 3398.4101152 29760
15 16800 16800 24000 0 29,760 271080.64607 29760
14 16800 16800 24000 0 29,760 29760 29760
13 16800 16800 24000 0 29,760 329760 29760
12 16800 16800 24000 0 29,760 -17633545014 29760
11 16800 16800 24000 0 29,760 29760 29760
10 16800 16800 24000 0 29,760 29960 29760
9 16800 16800 24000 0 29,760 30320 29760
8 16800 16800 24000 0 29,760 316387.3933 29760
7 16800 16800 24000 0 29,760 29760 29760
6 16800 16800 24000 0 29,760 29760 29760
5 16800 16800 24000 0 29,760 29760 29760
4 16800 16800 24000 0 29,760 29760 29760
3 16800 16800 24000 0 29,760 29760 29760
2 16800 16800 24000 0 29,760 29760 29760
1 16800 16800 24000 0 29,760 29760 29760
 CHAPTER 6

Plan D i 6%
FW delayed MARR 15%
Power Up
year InvestmentAOC Savings
0 -26000 0 0
1 0 -800 25000
2 0 -800 25000
3 0 -800 25000
12000 4 0 -800 25000
12000 5 0 -800 25000
12000 6 2000 -800 25000
29760 7
29760 8
29760 9
29760 10
29760 NPV -25135.34 -4800 150000
29760 AW 6641.686 800 -25000
29760 TOTAL -17558.31
29760
29760
29760 Chart Title
29760 40000
29760 35000
29760 30000
29760 25000
20000
29760
15000
29760 10000
5000
0
1 2 3 4 5 6

savings new ma
 CHAPTER 7

LLOYD
InvestmentAOC Savings New savings
-36000 0 0
0 -300 35000 34700
0 -300 32000 31700
0 -300 28000 27700
0 -1200 26000 24800
0 -1320 24000 22680 Year NCF
0 -1452 22000 20548
0 -1597.2 20000 18402.8 0 -200000
0 -1756.92 18000 16243.08 1 55000
0 -1932.612 16000 14067.39 2 55000
0 -2125.873 14000 11874.13 3 55000
-36000 -4904.724 130762.6 4 55000
7173.074 977.2763 -26054.72 5 40000
-17904.37 6 40000
7 40000
8 40000
Chart Title 9 5000
10 5000
11 5000
12 5000

ROR after 4 Years

ROR after 8 Years

2 3 4 5 6 7 8 9 10

savings new maintenance savings

 NCF in Sale for Year 4 500000
Increment 0.05
Decrement 5000
NCF in Sale for Year 8 100000
Increment 5000

NCF in Sale for Year 4 for 500000NCF in Sale for Year 8 for 100000 NCF with new capital in Year 8 cum NCF

-200000 -200000 -200000 -200000

55000 55000 55000 -145000
55000 55000 55000 -90000
55000 55000 55000 -35000
55000 55000 55000 20000
40000 40000 60000
40000 40000 100000
40000 40000 140000
40000 -160000 -20000
5000 -15000
5000 -10000
5000 -5000
5000 0
4% 19% 0%
4%
19%
 CHAPTER 8

MARR = 12%
#1 (n=3) #1 (n=4) #2 (n=5) #2 (n=8) #1 (n=4)
Year Cash flow Cash flow Cash flow Cash flow 20 yr CF
0 -100000 -100000 -200000 -200000 -100000
1 35000 35000 50000 50000 35000
2 35000 35000 55000 55000 35000
3 35000 35000 60000 60000 35000
4 35000 65000 65000 -65000
5 70000 70000 35000
6 70000 35000
7 70000 35000
8 70000 -65000
9 LCM = 20 years 35000
10 35000
11 LCM = 40 years 35000
12 -65000
13 35000
14 35000
15 35000
16 -65000
17 35000
18 35000
19 35000
20 35000
Overall i* 2.5% 15.0% 14.3% 25.0% Δi*
Retain or Retain Retain Retain
Eliminate? Eliminate Eliminate

PW @ 12% -15936 6307 12224 107624

26
27 Part a
28 For PW @ 12% select server # 2 (n=8) with largest PW value as shown in row # 2
29
30 Part b
31
32 #1 (n = 3) is eliminated. It has i* < MARR = 12%. Perform an incremental analysis of #1
33 = 4) and #2 (n = 5). Column H shows ∆i* = 19.5%. Now perform an incremental compar
 34 of #2 for n = 5 and n = 8. This is not necessary since no extra investment is necessary to
35 expand cash flow by three years. The ∆i* is infinity. It is obvious: select #2 (n = 8).
36
37 Part c
38
39 PW at 2000% > $0.05. ∆i* is infinity, as shown in cellK46
K45, where an error for IRR(K4:K
40

Question no 2
Marr = 25% ROR, PW, AW analysis (Cash flows $1000 units)
Alternative #3 #2 #1 #4
initial cost 0 -400 -750 -1000
Est. annual expenses $-1250,yrs1-5
$-1400(1-5);-2000(6-10)
$-800+6%/yr -3000
Est. annual revenues $1150(1-5) $1400+5%/yr$1000+4%/yr 3500
sale of buisness revenue $500(5-8)
Life year 10 10 10 10
Incr. ROR Comparison Actual CF Actual CF Actual CF Actual CF
Incremental Investment 0 0 -400 -750 -1000
Incremental Cash flow 1 -100 0 200 500
2 -100 70 192 500
3 -100 144 183 500
4 -100 221 172 500
5 400 302 160 500
6 500 -213 146 500
7 500 -124 131 500
8 500 -30 113 500
9 0 68 93 500
10 0 172 72 500
Overall i* 46.41% 10.1% 17.5% 49.1%
Retain or Eliminate Retain Eliminate Eliminate Retain
Incremental i*
Increment Justified?
Alternative selected
PW at Marr 215 -151 -146 785
AW at Marr $ (60) $ (220)
Alternative Acceptable Yes Yes
Alternative Selected 4
 #2 (n=5) to #1 (n=4) #2 (n=5) to #2(n=8)
#2 (n=5) Incremental #2 (n=5) #2 (n=8) Incremental
40 yr CF Cash flow 40 yr CF 41 yr CF Cash flow
-200000 -100000 -200000 -200000 0
50000 15000 50000 50000 0
55000 20000 55000 55000 0
60000 25000 60000 60000 0
65000 130000 65000 65000 0
-130000 -165000 -130000 70000 200000
70000 35000 70000 70000 0
70000 35000 70000 70000 0
70000 135000 70000 -130000 -200000
70000 35000 70000 70000 0
-130000 -165000 -130000 70000 200000
70000 35000 70000 70000 0
70000 135000 70000 70000 0
70000 35000 70000 70000 0
70000 35000 70000 70000 0
-130000 -165000 -130000 70000 200000
70000 135000 70000 -130000 -200000
70000 35000 70000 70000 0
70000 35000 70000 70000 0
70000 35000 70000 70000 0
70000 35000 -130000 70000 200000
Δi* 19.5% 70000 70000 0
Retain 70000 70000 0
70000 70000 0
70000 -130000 -200000
-130000 70000 200000
70000 70000 0
70000 70000 0
rgest PW value as shown in row # 29 70000 70000 0
70000 70000 0
-130000 70000 200000
70000 70000 0
orm an incremental analysis of #1 (n 70000 -130000 -200000
w perform an incremental comparison 70000 70000 0
 extra investment is necessary to 70000 70000 0
s obvious: select #2 (n = 8). -130000 70000 200000
70000 70000 0
70000 70000 0
70000 70000 0
70000 70000 0
70000 70000 0
Δi* Err:523
PW @ 12% 0.01
3000%

Question no 2
ows $1000 units)
#5
-1500
-500
1000

10
4-to-3 Actual CF 5-to-4
-1000 -1500 -500
600 500 0
600 500 0
600 500 0
600 500 0
100 500 0
0 500 0
0 500 0
0 500 0
500 500 0
500 500 0
31.1%
Retain
49.9% Err:523
Yes No
4 4
285 -500
$ (80)
Yes
 CHAPTER 9

Effectiveness Cost, $ per year

Measure, C Poles Power
247 1088479 459024
148 544240 229512
185 777485 401646
124 388743 200823

Eliminate or Retain
Eliminate DN
Eliminate X
Eliminate Y
Eliminate W

Select Alternative Z

Part 2

Alternative Arrange C/E Alt v/s Alt Δ C/E

W Z - 4755 Z v/s DN #DIV/0!
X X - 5228 X v/s Z 6374
Y W - 6265 Y v/s X 9665
Z Y - 6374 W v/s Y 7674
X v/s Z 6374
W v/s X 10956

Three alternatives Z, X and W are indicated as possible choices

Part 3

Ratio of night/day accidents, lighted = 839/2069 =

0.406 = (No of accidents / 379)

No of accidents = 154

Number prevented = 199-154 45

Part 4

For Z to be justified, the incremental comparison of W vs. Z would have to be ≥ 1.0. The
benefits would have to increase.

Find BW in the incremental comparison.

W v/s Z Δ B/C

1 = (Bw - 744000)/(1,547,503-589,566)
1 = (Bw - 744000)/(957937)
Bw = 1701937

The difference in the number of accidents would have to increase from 247 t0:

1701937 = (difference)6000
Difference = 284

From the day estimate in the case study of 1086 accidents without lights, now

Number of accidents would have to be = 1086 – 284 = 802

New night/day ratio = 802/2069 = 0.387

 CHAPTER 10

ost, $ per year

Total No of Componding periods
1547503 Capital Investment
773752 Cost Of Equity Capital
1179131 Tax rate
589566 intrest rate
Cost of d
% Debt

0.00%
30%
40%
50%
60%
70%
80%
90%

Dominance or not? Keep or Eliminate % debt v

Basis for comparison
No dominance Keep both 0.09
WACC

0.08
No dominance Keep both
0.07
Dominance Eliminate Y 0.06
No dominance Keep both 0.05
No dominance Keep both 0.04
0.03
0.02
ed as possible choices 0.01
0
0 0.1 0.2 0.3 0.4
%

0.406
vs. Z would have to be ≥ 1.0. The
ease.

ave to increase from 247 t0:

ccidents without lights, now

6 – 284 = 802

0.387
 10
$ 1,500,000
8.33%
35%
8%
Cost of debt capital
Loan Loan Intrest Tax Loan Cash Cost of WACC
Amount Payment amount Saving Flow Debut
$ 0.15 $ 0.02 $ 0.01 $ 0.00 $ 0.02 5.37% 8.33%
$ 450,000 $ 67,063 $ 22,063 $ 7,722 $ 59,341 5.37% 7.44%
$ 600,000 $ 89,418 $ 29,418 $ 2,942 $ 86,476 5.37% 7.15%
$ 750,000 $ 111,772 $ 36,772 $ 12,870 $ 98,902 5.37% 6.85%
$ 900,000 $ 134,127 $ 44,127 $ 15,444 $ 118,682 5.37% 6.55%
$ 1,050,000 $ 156,481 $ 51,481 $ 20,592 $ 135,889 5.37% 6.26%
$ 1,200,000 $ 178,835 $ 58,835 $ 20,592 $ 158,243 5.37% 5.96%
$ 1,350,000 $ 201,190 $ 66,190 $ 23,166 $ 178,023 5.37% 5.67%

% debt vs wcc

0.09
0.08
0.07
0.06
0.05
0.04
0.03
0.02
0.01
0
0 0.1 0.2 0.3 0.4 0.5 0.6 0.7 0.8 0.9 1
% DEBT
CHAPTER 11

Year rebuild cost AOC CR AW( AOC, RB) AW total

0 800,000 year
1 201,983 880,000 201,983 1,081,983 1
2 232,280 460,952 232,280 693,232 2
3 267,123 321,692 267,123 588,815 3
4 307,191 252,377 307,191 559,568 4
5 353,270 211,038 353,270 564,308 5
6 406,260 183,686 406,260 589,946 6

The value of AOC in year 1 must be large to get ESL of 6 years

 CHAPTER 13

Part 1 Stocks overall i*

Operating Cumulative
500 500 Bonds overall i*
1,500 2,000
2,000 4,000
2,000 6,000 part 2 if %
2,000 8,000 Stocks Fs
2,000 10,000 Bonds Fb

get ESL of 6 years

 CHAPTER 14

0.066 Part 1 Stocks overall i* 0.066

0.05 Bonds overall i* 0.05

11.28 part 2 if % 11.28

-79058.35515% Stocks Fs -79058.35515%
-69664.49034145 Bonds Fb -69664.49034145

part 3 Stocks Fs=Fb ($60,832.65)

Bonds Fs=Fb ($60,832.65)

part 4 Stocks Fs -55416.32256%

Bonds Fb -47291.83872%

part 5 Stocks F 9234.913293373

Bonds P ($20,273.09)
CHAPTER 15

Part 1 DLH Basis

Standard rate ($/DLH) 8.90666666666667

Premium rate ($/DLH) 26.64

Model IDC Rate $ DLH Hours

Standard 8.9066666666667 0.25

Premium 26.64 0.5

Part 2
Activity Cost Driver Volume of Driver
Quality Inspection 20000
Purchasing Orders 40000
scheduling Orders 1000
Prod. Set-ups Set-up 5000
Machine Ops Hours 10000

ABC Allocation
Standards
Driver Volume*Rate (Allocation $)
Quality 320000
Purchasing 900000
scheduling 320000
Prod. Set-ups 300000
Machine Ops 840000

Total $ 2680000

Sales Vloume 750000

IDC/Unit $ 3.57

Model Direct Material Direct Labour $

Standard 2.5 5

Premium 3.75 10
 IDC Allocation$ Direct Material Direct Labour
Total
$ Cost$Price $
2.23 2.5 5 9.73 10.703

13.32 3.75 10 27.07 29.777

Total Cost/year $ ABC IDC Rate $/unit

800000 40
1200000 30
800000 800
1000000 200
1200000 120

Allocation
Primium
Volume*Rate (Allocation $)
480000
300000
480000
700000
360000

2320000

250000
9.28

IDC Allocation$ Total Cost$

3.57 11.07

9.28 23.03
 CHAPTER 17

0% dept and 100 % equity financing

Debt financing (loan)
Year GI-E Interest * Principal
0
1 600,000 0 0
2 600,000 0 0
3 600,000 0 0
4 600,000 0 0
5 600,000 0 0
6 600,000
TOTALS
PW @ 10%
50% debt and 50% equity financing
Debt financing (loan) 6%
Year GI-E Interest * Principal
0
1 600,000 45000 150000
2 600,000 45000 150000
3 600,000 45000 150000
4 600,000 45000 150000
5 600,000 45000 150000
6 600,000
TOTALS
PW @ 10%
70% debt and 30% equity financing
Debt financing (loan)
Year GI-E Interest * Principal
0
1 600,000 63000 210000
2 600,000 63000 210000
3 600,000 63000 210000
4 600,000 63000 210000
5 600,000 63000 210000
6 600,000
TOTALS
PW @ 10%
90% debt and 10% equity financing
Debt financing (loan)
Year GI-E Interest * Principal
0
 1 600,000 81000 270000
2 600,000 81000 270000
3 600,000 81000 270000
4 600,000 81000 270000
5 600,000 81000 270000
6 600,000
TOTALS
PW @ 10%

debt option has the largest PW at 10%. The largest D-E financing option will always offer the largest return on the inves

PART 2

Subtract 2 different equity CFAT totals.

For 30% and 10%:
58,500

Divide by 2 to get the change per 10% equity increase.

29250

Total CFAT increases by $29,250 for each 10% increase in equity financing.

PART 3

This happens because as less of Pro-Fence’s own (equity) funds are committed to the Victoria site, the larger the lo

PART 4

Using the EVA series as an estimate of contribution to Pr-Fence’s bottom line through time.
50% debt and 50% equity financing
Debt financing (loan) 0.06
Year GI-E Interest * Principal
0
1 600,000 45000 150000
2 600,000 45000 150000
3 600,000 45000 150000
4 600,000 45000 150000
5 600,000 45000 150000
6 600,000
TOTALS
PW @ 10%
 AW @ 10%

ness in Victoria should turn positive the third year and remain a contributor to the business after that, as indicated by th
 Capital= $ 1,500,000
Equity MACRS Taxes
Investment rate Depr. TI ,@ 35% CFAT
1,500,000 1,500,000
20% 300,000 300,000 105000 495,000
32% 480,000 120,000 42000 558,000
19.20% 288,000 312,000 109200 490,800
11.52% 172,800 427,200 149520 450,480
11.52% 172,800 427,200 149520 450,480
5.76% 86,400 513,600 179760 420,240
100% 1,500,000 735000 1,365,000
Rs653,289.10

Equity MACRS Taxes

Investment rate Depr. TI ,@ 35% CFAT
750000 750000
20% 300000 255,000 89250 315,750
32% 480000 75,000 26250 378,750
19.20% 288000 267,000 93450 311,550
11.52% 172800 382,200 133770 271,230
11.52% 172800 382,200 133770 271,230
5.76% 86400 513,600 179760 420,240
100% 1500000 656250 1,218,750
675,015

Equity MACRS Taxes

Investment rate Depr. TI ,@ 35% CFAT
450000 450,000
20% 300000 237,000 82950 244,050
32% 480000 57,000 19950 307,050
19.20% 288000 249,000 87150 239,850
11.52% 172800 364,200 127470 199,530
11.52% 172800 364,200 127470 199,530
5.76% 86400 513,600 179760 420,240
100% 1500000 624750 1,160,250
703,215

Equity MACRS Taxes

Investment rate Depr. TI ,@ 35% CFAT
150000 150,000
 20% 300000 219,000 76650 172,350
32% 480000 39,000 13650 235,350
19.20% 288000 231,000 80850 168,150
11.52% 172800 346,200 121170 127,830
11.52% 172800 346,200 121170 127,830
5.76% 86400 513,600 179760 420,240
100% 1500000 593250 1,101,750
731,416

largest return on the invested equity capital. But, too high of D-E mixes are risky.

toria site, the larger the loan principal.

me.

Equity MACRS Taxes

Investment rate Depr. Book value TI ,@ 35% NPAT
Interest on invested Capital
750000 1,500,000
20% 300000 1,200,000 255,000 89250 165,750 150,000
32% 480000 720,000 75,000 26250 48,750 120,000
19.20% 288000 432,000 267,000 93450 173,550 72,000
11.52% 172800 259,200 382,200 133770 248,430 43,200
11.52% 172800 86,400 382,200 133770 248,430 25,920
5.76% 86400 0 513,600 179760 333,840 8,640
100% 1500000 656250
 0
ter that, as indicated by the EVA values. Plus, the AW of EVA at the required 10% return is positive (AW = $113, 342).
 EVA

15,750
-71,250
101,550
205,230
222,510
325,200

493,633
113,342