6. If you expect to receive a gift of $50,000 six years from now, the present wo

Question

6. If you expect to receive a gift of $50,000 six years from now, the present worth of the gift at a real interest rate of 4% per year and an inflation rate of 3% per year is closest to: A. $37,200 B. $33,100 C. $29,800 D. $27,600 Formula used: 7. What is the discounted payback period for a business that has an income of $5000 per year and $150 0 per year if your initial investment was $23,800 and your MARR is 10% per year? A. Less than 6 years B. 8 years C. 12 years D. 17 years Interest formula used For a market interest rate of 16% per year, compounded quarterly, and an inflation rte of 2% per quarter, the effective quarterly real interest rate is closest to? A. 2% B. 3% C. 4% D.6% Formula used: A construction equipment costs $40,000 today. If the market interest rate was 15% per year and cost has increased only by the inflation rate of 6% per year, its cost 10 years ago was closest to: A. $71,600 9. B. $27,405 C. $22,335 D. $17,700 Formula used: 10. An alternative has the following cash flows: benefits $60,000 per year; disbenefits $25,000 per year; annual equivalent of initial cost = $30,000: O&M; costs of $10,000 per year. year, the modified B/C ratio is closest to At an interest rate of 10% per B. 0.83 C. 0.67 D. 0.64 A. 0.89 Formula used ET331 Finals-page 2

Explanation / Answer

Question 6

Real interest rate = 4% per year

Inflation rate = 3% per year

Nominal interest rate = Real interest rate + Inflation rate = 4% + 3% = 7%

Time period = 6 years

Future Value = $50,000

Calculate the Present Worth -

PW = FV(P/F, i, n)

PW = $50,000(P/F, 7%, 6)

PW = $50,000 * 0.6663

PW = $33,315

The present worth is $33,315. It is closest to $33,100.

The correct answer is the option (B).

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