A local car wash charges $3.00 per wash or the option of paying $12.95 for 5 was

ID: 1220798 • Letter: A

Question

A local car wash charges $3.00 per wash or the option of paying $12.95 for 5 washes, payable in advance with the first wash. If you normally washed your car once a month, would the option be worthwhile if your Minimum Attractive Rate of Return (MARR) is 29% compounded annually? A person borrows $5,000 at an interest rate of 18% compounded monthly. Monthly payments of $180.76 are agreed upon. (a) What is the length of the loan? (b) What is the total amount that would be required at the end of the sixth month to pay off the entire balance? The returns for a business for five years are as follows: $8,250; $12,600; $9,750; $11,450 and $14,500. If the value of the money is 12%, what is the equivalent uniform annual benefit for the five-year period? I have borrowed $1000 from the bank. The interest rate I am to pay is 20%, compounded monthly. I am to repay the loan by making 24 equal monthly payments. What is the amount of my monthly payments? Tony invested $15,000 in a high yield account. At the end of 30 years he closed the account and received $539,250. Compute the effective interest rate he received on the account. A largo bakery is considering three alternative investments for next year. They were identified by the processing engineering department to be important feasible projects that merit evaluation. They calculated they spent $5,600 in the last 6 months gathering the following information: If MARR as 12%, which alternative should be selected?

Explanation / Answer

3) The benefits are $8250, $12600, $9750, $11450 and $14500. The value of money is 12% annually, so that after five years the benefits will rise by 12% on compound basis.

We need to find the EUAB which is given by:

= [$8250 (P/F 12%,1), $12600 (P/F 12%, 2), $9750 (P/F 12%, 3), $11450 (P/F 12%, 4) and $14500 (P/F 12%, 5)]/5

This is tabulated below

Present discount factor

Benefits

Present value

1st year

0.8929

8250

7366.425

2nd year

0.7972

12600

10044.72

3rd year

0.7118

9750

6940.05

4th year

0.6355

11450

7276.475

5th year

0.5674

14500

8227.3

Total

39854.97

EUAB

7970.994

Hence EUAB amounts to approximately $7971

4) An interest rate of 20% when compounded monthly becomes 1.67 % per month. The amount of loan is $1000 and it is to be paid in 24 montly installments. We first need to find the future value of the loan as in:

1000*(1 + 0.0167)24 = $1488

So this means we need to pay $1488 in 24 equal installments, which thus becomes $62 a month