Question

Question 1:

Some of the following future cash flows have been expressed in then-current (future) dollars and others in CV dollars. Use an interest rate of 10% per year and an inflation rate of 3% per year. Find the present worth with all cash flows expressed in future dollars.

Year	Cash flow, $	Expressed as
0	16,500	CV
3	37,500	Then-current
4	10,900	Then-current
7	26,500	CV

The present worth with all cash flows expressed in future dollars is $ --------

Question 2:

Compare the alternatives below on the basis of their capitalized costs with adjustments made for inflation. Use i =9% per year and f = 2.6% per year.

Alternative	X	Y
First cost, $	-18,000,000	-11,500,000
AOC, $ per year	−25,000	−10,000
Salvage value, $	105,000	82,000
Life, years	∞	10

The capitalized cost for alternative X is $ -------.

The capitalized cost for alternative Y is $ -------.

Select alternative?(Click to select)? X or Y.

Question 3:

The two machines shown are being considered for a chip manufacturing operation. Assume the MARR is a real return of 10% per year and that the inflation rate is 4% per year.

Machine	A	B
First Cost, $	-154,000	-880,000
M&O, $ per year	–70,000	–5,000
Salvage Value, $	40,000	200,000
Life, years	5	∞

Which machine should be selected on the basis of an annual worth analysis if the estimates are in constant-value dollars? What is the annual worth of the selected alternative?

Select machine? (Click to select)  B or A.

The annual worth of the alternative is $---------.

Question 4:

The two machines shown are being considered for a chip manufacturing operation. Assume the MARR is a real return of 10% per year and that the inflation rate is 4% per year.

Machine	A	B
First Cost, $	-154,000	-880,000
M&O, $ per year	–70,000	–5,000
Salvage Value, $	40,000	200,000
Life, years	5	∞

Which machine should be selected on the basis of an annual worth analysis if the estimates are in future dollars? What is the annual worth of the selected alternative?

Select machine? (Click to select)  A or B.

The annual worth of the alternative is $---------.

Answer 1

As per policy first question has been answered.

Years	Type	Cash Flow	PVF @3%	CV (Cash Flow without inflation	PVF @10%	Present Worth
		A	B	C=A*B (if Type is Then Current)	D	E=C*D
0	CV	16,500	1.000	16,500	1.000	16,500
3	Then current	37,500	0.915	34,318	0.751	25,783
4	Then current	10,900	0.888	9,685	0.683	6,615
7	CV	26,500	0.813	26,500	0.513	13,599
	Total					62,497

If the cash flow are Then current type then effects of inflation are removed in CV (Cash Flow without Inflation).

Then Present value are calculated based on the interest rates.

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