QUESTION 1 The proposal is for a warehouse costing $200,000. The warehouse has a

Question

QUESTION 1 The proposal is for a warehouse costing $200,000. The warehouse has an expected useful life of 35 years and a set salvage value of $35,000. Annual receipts of $37,000 are expected, annual maintenance taxes, and administrative cost ill be $13,000/year. What is the present worth if MARR is 99 $76345 $162515 $32,705 $55,318 QUESTION 2 Covington Corporation purchased a vibratory finishing machine for $20,000 in year 0. The useful life of the machine is 10 years, at the end of which the machine has zero salvage value. The machine generates net annual revenues of $6,000. The annual operating and maintenance expenses are estimated to be $1,000. If Covington's MARR is 15% what is the future worth of this investment? $5,094 O $20,807 $15,876 $17,665 QUESTION 3 Maintenance money for a new building has been sought. Mr. Kendall would like to make a donation to cover all future expected maintenance cost for the building. These maintenance costs are expected to be $50,000 each year for the first 5 years, $70,000 each year for years 6-10, and $90,000 each year after that. The building has an indefinite service life How much should be put into a account that will pay 13% interest to pay the maintenance over its infinite life? $513,438 $432900 O$786.988 $1,114,375

Explanation / Answer

(Question 1) Option (D)

Annual net benefit ($) = Annual receipts - Annual costs = 37,000 - 13,000 = 24,000

Present worth ($) = - 200,000 + 24,000 x PVIFA(9%, 35) + 35,000 x PVIF(9%, 35)

= - 200,000 + 24,000 x 10.5668** + 35,000 x 0.0490** = - 200,00 + 253,603 + 1,715

= 55,318

**From PVIFA and PVIF tables

(Question 2) Option (B)

Annual net benefit ($) = Annual revenue - Annual costs = 6,000 - 1,000 = 5,000

Future worth ($) = - 20,000 x FVIF(15%, 10) + 5,000 x FVIFA(15%, 10)

= - 20,000 x 4.0456** + 5,000 x 20.3037** = - 80,912 + 101,519

= 20,607

**From FVIFA and FVIF tables

NOTE: First 2 questions are answered as per policy.

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