Fall 2018 Homework Three | Online Assignment Help
Question 1
• A company buys a machine for $60,000
• Maintenance is expected to be $2,000 per year
• Revenue is expected to be $5,000 per year
• There is a major maintenance cost at 10 years of $15,000
• The life of the machine is expected to be 15 years
• At the end of 15 years, the machine should be worth no more than $5,000
• The company uses 5% as their nominal interest rate
• What is the present worth of this opportunity?
• Create the cash flow for this opportunity
• Set the problem up on an Excel spread sheet and solve using the spread sheet functions
• Label the columns on the spread sheet, the functions should use referenced cells, and the final answer should also be labeled. The work should be clear such that you can repeat the calculations at a later date.
Question 2
• The not for profit organization wishes to buy a van to transport supplies
• The cost of the van is $35,000
• The van is expected to be driven 10,000 miles a year
• Gas mileage is 25 mpg and currently gas is $2.50 gal. Assume you buy gas in bulk every 6 months
• The van will need basic maintenance every 5,000 miles with an expected cost of $100
• The van will need major maintenance every 50,000 miles at $1,500 per maintenance visit
• The van should last about 100,000 miles
• At 100,000 miles the salvage value will be no more than $3,000
• The not for profit uses a 10% nominal interest rate to consider opportunities
• What is the annual cost of this opportunity?
• What is the equivalent future worth of this opportunity when the van reaches 100,000 miles?
• Create a cash flow for this opportunity
• Set the problem up on an Excel spread sheet and solve using the spread sheet functions
• You need to present your work in a professional manner. Label the columns on the spread sheet, the functions should use referenced cells, and the final answer should also be labeled. The work should be clear such that you can repeat the calculations at a later date.
