# Problems

1-The cash flow of an investment is shown below. What is the EUAW? (/=10%)

2- Greed Corporation purchased a foundry system for \$ 1 million. The net income from operating this system is \$300,000 per year. Assuming a life of five years and no salvage value, what is the EUAW of this system? Greed's cost of money is 12%.

3 - Darbol Corporation received two investment proposals. The estimate of the financial situation of each proposal is presented in the following table. Darbol also has the choice of investing the capital and receiving an interest rate of 15% annually.

Using the EUAW method, perform the financial analysis and make your recommendation as to which of the proposals, if any, they should accept.

Data

Proposal A

Proposal B

Initial Cost

\$50,000

\$140,000

Salvage Value

\$20,000

\$30,000

(table continued on next page)

(table continued from previous page)

Data

Proposal A

Proposal B

Annual Benefit \$30,000

\$40,000

Annual Cost

\$15,000

\$10,000

Life

3 years

### 6 years

4- Mr. and Mrs. Smith, who both work for a national retail chain, purchased a house with a price of \$400,000. They paid a down payment of \$40,000 using their savings and took a 30-year loan from the local bank at an interest rate of 9% per year. What is their monthly payment?

After living five years in this house, they were transferred by their employer to another division in a different state, and they wanted to sell the house.

a. How much of the principal is left at the end of the fifth year?

b. If their MARR is 10%, what should be their minimum asking price for the house?

5- A successful physician has invested \$800,000 cash in a rental apartment house. If he has a MARR of 10%, how much should he charge for rent per month to recover his investment in 10 years?

6- You have the option of choosing between the following two proj ects.

a. Initial investment \$700K, annual income \$400K

b. Initial investment \$ 1,600K, annual income \$600K

The life of project a is five years and that of project b is ten years. If you have a MARR of 30%, which one of the proj ects should you accept?

7- Mr. Goodman, a friend of yours, is asked to invest in the following project: installation and operation of a facility with a life span of five years. The initial investment is \$90M. It will have a net profit of \$25M/Yr the first two years and of \$30M/Yr in years 3,4, and 5. At the end of year 5, it has to be disposed of at a cost of \$10M with no resale value. He also has the option of investing the same money in a project that will bring him \$29M per year. If he has the money and his opportunity cost of money is 10% (I=10%), which proposal do you advise him to accept? Why? Explain.

8- A developer is given the following two options for the purchase of a property:

b. Pay \$30,000 at the end of each year, starting one year after purchase, for the next five years. Which option should he take?

9- In engineering economic analysis of projects, when using Net Present Worth or Benefit/Cost ratio we have to equalize the lives of the projects. This equalization is not necessary when using EUAW methods. Why? Can you show this using a cash flow diagram?