CHAPTER 6 ANSWERS

6.9 Subscripts are C for contract service and B for Burling Coop installed.

PWC = $- 354,407

PWB = $-402,744

The contract service is a better deal with a smaller PW of costs.

6.10
PW = $+40.26

6.11 PW = $-155

No, the bond investment does not make the target rate since PW < 0.

6.12 (a) V = $100,000

(b) Maturity is 60/4 = 15 years.

(c) Effective annual rate 4.51% per year

6.13 Bottled: Cost/mo = $30

PW =$-348.57

Filtered: Cost/mo = $16.20

PW = $-188.23

Tap: Cost/mo = $0.4125

PW = $-4.79

6.14 PWpull = $-5187.780 ($-5,187,780)

PWpush = $-5803.265 ($-5,803,265)

6.15 Monetary units are in $1000. Calculate PW values to select Siemens.

PWDel = $-1500.355 ($-1,500,355)

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 PWSie = $-1431.786 ($-1,431,786)

6.16 Monetary units are in $ million. Calculate PW values to select alternative B.

PWA = $-3553.4525 ($-3.55 billion)

PWB = $-2398.90 ($-2.40 billion)

PWC = $-3453.427 ($-3.45 billion)

6.17 PWProf = $-57,495

PWExec = $-75,943

Select the Professional Plan.

6.18 PWH = $-259,271

Effective i = 6.152%

PWG = $-150,592

Select Gwendelyn’s plan.

6.19 (a) Use LCM = 6 years for PW analysis to select method A.

PWA = $-326,184

PWB = $-337,106

(b) Use n = 3 in all calculations and do not repurchase A. Still select method A,
now by a larger margin.

PWA = $-186,253

PWB = $-299,738

6.20 PWA = $-382,433

PWB = $-337,106

Select method B, which is a change from the previous choice.

6.21 (a) PWC = $-375,922

For asphalt, repave after 10 years and re-start maintenance charge in year 12.

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 PWA = $-386,958

Select the concrete option, with a marginal advantage.

(b) Maintenance costs are incurred over 5 years only; there are none for concrete.
Now select the asphalt option by a large margin.

PWC = $-375,000

PWA = $-257,667

6.22 (a) LCM is 6 years for R and T evaluation. Select vendor T.

PWR = $-305,798

PWT = $-231,702

(b) Re-purchase R after 2 years. Rental is paid at the end of each year.

PWR = $-204,126

PWT = $-132,304

PWrent =$-124,345

6.23 (a) PW analysis requires an LCM of 12 years. Select machine D.

PWD = $-190,344

PWE = $-217,928

(b) Select machine D.

FWD = $-1,018,398

FWE = $-1,165,980

6.24 PWD = $-129,437

PWE = $-142,424

Select machine D.

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6.25 Calculate FW in 15 years to select the 35% more efficient freezer.

FW20% = $-4280

FW35% = $-3962

6.26 FWC = $-907,336

FWM = $-1,075,244

6.29 (a)
A = $2160 per month

(b)

A = $26,698 per year

6.30 Monetary terms are in $1000 units.

CC = $-644.437 ($-644,437)

6.31 (a) CC = $+144,132,294

(b) Use Equation [6.3] to calculate A.

A = $11,530,584

The A means that the toll road should have an equivalent annual cash
flow of approximately $11.53 million for the foreseeable future.

6.32 Find AW and then divide by i, according to Equation [6.2].

AW = $-37,751

CC = $-314,589

6.33 CC= $2,100,000

6.34 CC = $33,333

1000(F/A,1.5%,n) = 33,333
Tom can spend at the $1000 per month rate for only 2 years and 3 months before
obligating himself to a $500 per month debt payment for the rest of his life!

6.35 Monetary terms are $ million units. Determine CC values to select undersea route.

CCland = $-426.13 ($-426,130,000)

CCsea = $-370.0 ($-370,000,000)

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6.36 Monetary terms are $1000 units. Determine CC values of revenues minus costs to
select plan 2.
CC1 = $-43,567.552 ($-43,567,552)

CC2 = $-40,207.685 ($-40,207,685)

6.37 Monetary terms are $1000 units. Determine CC values of revenues minus costs to
select design B.

CCA = $+1024.555 ($+1,024,555)

CCB = +$2172.924 ($+2,172,924)

6.38 Monetary terms are $1000 units. Determine CC values of to select wells.

CCdam = $-10,500 ($-10,500,000)

CCwells = $-6285.00 ($-6,285,000)

6.39
CCE = $+4775.35 ($+4,775,350)

CCF = $-1527.217 ($-1,527,217)

CCG = $+3333.333 ($+3,333,333)

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