Assignment: CEE 300

1. Gas station and Ice-cream

Build a gas station Build a soft-serve ice cream

stand

First cost $80,000 $120,000

Annual property taxes $3,000 $5,000

Annual income $11,000 $16,000

Salvage value -0- -0-

Assuming a 20 period:

Then

We can use the formula for Net Present Value to calculate suitable investment.

Which in this case is

Gas station

NPV = -80000 + (11000/0.06) * [1 - 1/(1+0.06)^20] + 0

NPV = -80000 + 11000*11.47 + 0

NPV = $23,230

Ice Cream

NPV = -First cost (initial investment) + ({Annual Income- taxes}/ discount rate) X [1 - 1/(1+discount
rate)^n] + salvage value / (1+discount rate) n

NPV = -120000 + [(16000 - 5000) / (1+0.06) 1] x [1 - 1/ (1+0.06)20] + 0

NPV = -120000 + (11000 / 1.06) x 14.33 + 0 NPV = $64,600

NPV=-120000 -148.707.55

NPV= $14,990.76

2. Cash Flow analysis

 Year A B

0 $2,000 $2,800

1 +800 +1,100

2 +800 +1,100

3 +800 +1,100

MARR= 5%

Suitable Cash flow therefore=

Cash flow A:

PV = -2000 + 800/(1+0.05)^1 + 800/(1+0.05)^2 + 800/(1+0.05)^3

PV= 178.621%

Cash flow B:

PV = -2800 + 1155 + 1212.75 + 1273.40

PV= $840.99

3. Machine X and Y

Machine X Machine Y

Initial Cost (IC) $200 $700

Uniform Annual Benefit (UA) $95 $120

End-of-useful-life salvage value $50 $150

ESSV

Useful life, in years 6 12

Since PW =-IC + (UAB - ESSV)/((1+i)^n - 1)/((1+i)^n/i)

Substituting the values therefore we have

For X
= -200 + (95 - 50)/((1+0.10)^6 - 1)/((1+0.10)^6/0.10)

= $107.89

For Y

For Machine Y:

= -700 + (120 - 150)/((1+0.10)^12 - 1)/((1+0.10)^12/0.10)

= $496.10