Engineering Economy - Cash Flow Homework Solution | ISYE 6225, Assignments of Systems Engineering

Download Engineering Economy - Cash Flow Homework Solution | ISYE 6225 and more Assignments Systems Engineering in PDF only on Docsity! Cash Flow Homework Solutions 1. PVA = 1000 + (400/0.1)[1 – (1.1)-5] - 300(1.1)-5 = 2330.04. PVB = 2000 + (200/0.1)[1 – (1.1)-8] - 800(1.1)-8 = 2693.78. AEA = 0.1(2330.04)/[1 – (1.1)-5] = 614.66. AEB = 0.1(2693.78)/[1 – (1.1)-8] = 504.93. Since AEB < AEA equipment type B is recommended. 2. PVA over SIX years = [100,000 + (12,000/0.1)(1 – (1.1)-3](1 + (1.1)-3) = 227,394. PVB over SIX years = [150,000 + (24,000/0.1)(1 – (1.1)-6] - S(1.1)-6 = 254,526 - S(1.1)-6. The value of S that equates the 2 PV’s is 48,066. Second approach: The AE of 100,000 over 3 yrs = 40,211 and the AE of 150,000 over 6 yrs = 34,441. The total equivalent yearly expense for A is 52,211 and for B is 58,441. The difference is 6230 per year for 6 years, whose future value at year 6 = 48,066, which must equal S. 3. The book value (BV) after 4 years is 600,000. The salvage or market value (SV or MV) after 4 years is (0.8)4(1,000,000) = 409,600. The investment entry equals MV – τ(MV-BV) = 409,600 – 0.35(409,600 – 600,000) = 476,240. 4. a. Project cash flow analysis 0 1 2 Revenues 600,000 800,000 Expenses Operating costs 250,000 275,000 Interest expense 18,000 9,000 Depreciation 50,000 50,000 Total 318,000 334,000 Net income before tax 282,000 466,000 Income tax 84,600 139,800 Net income after tax 197,400 326,200 Adjustments Principal repayment 150,000 -75,000 -75,000 Depreciation 50,000 50,000 Investment -350,000 *195,050 After tax cash flow -200,000 172,400 496,250 *MV=0.72(350,000)=171,500. BV=350,000–100,000=250,000. 171,500-.3(171,500–250,000) = 195,050. b. 350,000 – (0.3)(50,000)[ {1 – (1.15)-2 }/ 0.15 ] – (195,050)( 1/(1.15)2 ) = 178,128. c. 350,000 – (0.3)(50,000)[ {1 – (1.15)-7 }/ 0.15 ] = 287,594.