Brian Mutembei

Problem #1 Two types of machine tools are available for performing a particular task in a manufacturing firm. The estimated cost and salvage values are given as follows: Machine A Machine B Investment $40,000 $50,000 Annual operating cost $4000 $2000 Annual revenues $6000 $7000 Salvage value $5000 $3000 Service life 5 years 8 years Depreciation method MACRS-GDS 5 years MACRS-GDS 5 years Before tax MARR 20% 20% Effective income tax 40% 40% Make a comparison between the 2 machine by developing the after-tax cash flow table on excel. a. For each machine: Calculate the AW, PW, FW, IRR. Which machine should be selected? b. For machine A Calculate the book value at year 5 and the gain/loss on disposal c. for machine B calculate the book value at year 7 and the gain/loss d comment on the results of part b and a

EXPERT ANSWER

5) Determine the value of EUAw from the cash flow diagram shown below, i-9%. 6) Compute the rate of return represent flow.

EXPERT ANSWER 5) IN ORDER TO FIND THE EQUIVALENT ANNUAL WORTH WE WILL USE THIS FORMULA: P = R * PV / ( 1 – ( 1 + R) ^ – N ) AND BEFORE THAT WE WOULD NEED TO FIND THE PRESENT VALUE . INITIAL INVESTMENT = $7,500 ANNUAL CASH FLOW RECIEVED = $2,000 …

5) Determine the value of EUAw from the cash flow diagram shown below, i-9%. 6) Compute the rate of return represent flow. Read More »

what is the amount of ten equal annual deposits that can provide five annual withdrawals where a first withdrawal of $2000 is made at the end of year 11 and subsequent withdrawals increase at the rate of 5% per year iver the previous year’s if the interest rate is 7% compounded annually?Use equation: A=P(P/A, i, n)

EXPERT ANSWER We will equate the present value of 5 withdrawals at year 10 with the future value of ten annual deposits at year 10. Withdrawals are A11=$2000, A12 = $2000*(1.05), A13 = $2000*(1.05)^2, A14 = $2000*(1.05)^3, A15 = $2000 *(1.05)^4. This is geometric series starting at $2000 and growing at a 5% rate. Use …

what is the amount of ten equal annual deposits that can provide five annual withdrawals where a first withdrawal of $2000 is made at the end of year 11 and subsequent withdrawals increase at the rate of 5% per year iver the previous year’s if the interest rate is 7% compounded annually?Use equation: A=P(P/A, i, n) Read More »

What is the amount of 10 equal annual deposits that can provide five annual withdrawals, where a first withdrawal of $2,000 is made at the end of year 11 and subsequent withdrawals increase at the rate of 5% per year over the previous year’s, if the interest rate is 7% compounded annually?

EXPERT ANSWER FV of an annuity = P[(1+r)^n – 1 / r] FV of an annuity = P[((1+0.07)^10 – 1)/0.07] = 13.816 PVGA = C1/r-g [1- (1+g/1+r)^n ] Where:PVGA = present value of growing annuityC1 = the first paymentr = interest rate per periodg = a constant growth rate per periodn = number of periods …

What is the amount of 10 equal annual deposits that can provide five annual withdrawals, where a first withdrawal of $2,000 is made at the end of year 11 and subsequent withdrawals increase at the rate of 5% per year over the previous year’s, if the interest rate is 7% compounded annually? Read More »