a) A compnay signs a contract with a supplier to buy $2M worth of services now t

Question

a) A compnay signs a contract with a supplier to buy $2M worth of services now to be followed by 10 more. What is the present worth of the contract, assuming a MARR of 7%? Answer in millions of dallars

b) A 6% coupon rate bond has a face value of $1,000, pays interest semi-annually and matures in 10 years. If the current market rate is 8%, compounded semi-annually, what is the bond's value today?

c)A company wants to set up a perpetual care fund to cover future expenses for 75 years expenses for 75 years. The initial cost is $5,000 and routine maintenance will cost $200 per year. Every 5thyear, a major cleaning must be done, at an extra cost of $300. The bath is to be demolished after 75 years, with the last $500 covering the demolition costs. If the MARR is 8%, what is the capitalized cost of this project?

d) A B C D

Cost 75K 50K 15K 90K

Annual Benefit 18.8K 13.9K 4.5K 23.8K

Each alternative has a five-year useful life, no salvage value and the MARR is 10%. What is the best option, using Payback? Answer in years to 1 decimal place

P.S Please show me the full solution too Thank you.

Explanation / Answer

a)

2+2*PVIFA(7,10) = 2+2*7.0236 = $16.0472 Million

b)

BV = 30*PVIFA(4,20)+1000/(1.04)^20 = 30*13.5903+456.39 = $864.10

c)

capitalized cost = 5000+200*PVIFA(8,75)+(300/1.08^5)+(300/1.08^10)+(300/1.08^15)+(300/1.08^20)+(300/1.08^25)+(300/1.08^30)+(300/1.08^35)+(300/1.08^40)+(300/1.08^45)+(300/1.08^50)+(300/1.08^55)+(300/1.08^60)+(300/1.08^65)+(300/1.08^70)+(300/1.08^75)+(500/1.08^75)

capitalized cost = 5000+200*12.4611+638.77 = 8130.99 = $8131

d)

Using payback

project 1,

18.8*3 = 56.4

left = 75-56.4 = 18.6

paybck period = 3+18.6/18.8 = 3.99 yrs

project 2,

13.9*3 = 41.7

left = 50-41.7 = 8.3

paybck period = 3+8.3/13.9 = 3.59 yrs

project 3,

4.5*3 = 13.5

left = 15-13.5 = 1.5

paybck period = 3+1.5/4.5 = 3.33 yrs

project 4,

23.8*3 = 71.4

left = 90-71.4 = 18.6

paybCK PERIOD = 3+18.6/23.8 = 3.78yrs

project 3 is best wrt payback period

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