NAME: HUZAIFA ALI

SECTION: C
ROLL # CV-2018-122
 Motor A Motor B
Cost (P) $ 12122 $ 16122
Life (n) 10 years 10 years
Interest rate (i%) 10% 10%
Taxes 1.5% per year 1.5% per year
Cost of Electricity 0.05 kwh 0.05 kwh
Electricity consumption 74.6 kw 74.6 kw
O&M $ 500/year $ 250/year
Efficiency of motor 74% 92%
Full load of hour 1100 hours 1100 hours
QUESTION: 1

DATA:

1. Value of EUAC
EUAC = P [i %( 1+ i %) n/ (1+ i %) n – 1]
EUACA = 12122 [0.1(1+ 0.1)10/ (1+ 0.1)10 – 1]
EUACA = $1,972.8
EUACB = 16122 [0.1(1+ 0.1)10/ (1+ 0.1)10 – 1]
EUACB = $2,623.8
2. Electricity Consumption:
E.C = electricity consumption X Electricity charge/efficiency
E.C = 74.6x0.05/0.74
E.C = 5.04
E.C = 74.6x0.05/0.92
E.C = 4.05
3. Taxes:
Taxes = 1.5% P
Tax of Motor A = 12122x 0.015
= $181.8
Tax of Motor B = 16122x 0.015
= $241.8

4. Operational & Maintenance Cost

O&M of Motor A = $500/year
Motor A = A + Bx + C + D = 1972.8 + 5.04x + 181.8 +500
Motor A = 2,654.6 + 5.04x
O&M of Motor B = $250/year
Motor B = A + Bx + C + D = 2623.8 + 4.05x +241.8 + 250
Motor B = 3,115.6 + 4.05x

5. Economical Between Motor A and B:

2654.6 + 5.04x = 3115.6 + 4.05x
5.04x - 4.05x = 461
X= 465.6 hour
1100/465.6 = 2.36
Motor A = 1972.8x2.36 = $4,655.8
Motor B = 2623.8x2.36 = $6,192.2
Therefore,
Motor A is recommended being more economical.
QUESTION: 2
 DEBT FAINANCING
When a company borrows money to be paid back at a future date with interest it
is known as debt financing. Examples of debt financing: Bank loans, Personal
loans, Government-backed loans etc.
 EQUITY FAINANCING
Equity financing is the method of raising capital by selling company stock to
investors. In return for the investment, the shareholders receive ownership
interests in the company.
 FIANANCIAL FORECASTING
Financial forecasts estimate future income and expenses for a business over a
period of time, generally the next year. They are used to develop projections for
profit and loss statements, balance sheets, burn rate, and other cash flow
forecasts.
 BREAK-EVEN ANALYSIS
A break-even analysis is a calculation of the point at which revenues equal
expenses. It is a useful tool for determining at what point your company, or a new
product or service, will be profitable and it's a financial calculation used to
determine the number of products or services you need to sell to at least cover
your costs.
 LIFECYCLE COST
Life cycle costing is the process of compiling all costs that the owner or producer
of an asset will incur over its lifespan. In includes purchase price, installation cost,
operating costs, maintenance and upgrade costs, and remaining value at the end
of ownership or its useful life.
 NET PRESENT VALUE
Net Present Value (NPV) is the value of all future cash flows (positive and
negative) over the entire life of an investment discounted to the present. NPV is
used in capital budgeting and investment planning to analyze the profitability of a
projected investment or project.
  INTERNAL RATE OF RETURN
Internal rate of return (IRR) is the interest rate at which the net present value of
all the cash flows (both positive and negative) from a project or investment equal
zero. Internal rate of return is used to evaluate the attractiveness of a project or
investment. If the IRR of a new project exceeds a company’s required rate of
return, that project is desirable. If IRR falls below the required rate of return, the
project should be rejected.
 HURDLE RATE
The hurdle rate is the minimum rate that the company or manager expects to
earn when investing in a project. It is equal to the company's costs of capital,
which is a combination of the cost of equity and the cost of debt. Managers
typically raise the hurdle rate for riskier projects or when the company is
comparing multiple investment opportunities.