Assignment Complete: The Following Numbered Problems Using A

Assignmentcomplete The Following Numbered Problems Using An Excel Spr

Complete the following numbered problems using an Excel spreadsheet. You must show your work to get full credit. Each student is responsible for completing their own response to the problems.

1. Consider the cash flows for the following two projects:

• (a) For project A, find the value of X that makes the equivalent annual receipts equal the equivalent annual disbursement at i=10%.
• (b) Would you accept project B at i=11% based on AE criterion?

2. Joey is considering buying a 2016 Audi RS7 costing $108,900. The vehicle's retaining values are 60% after 36 months and 30% after 72 months. If his interest rate is 3% compounded annually, what is the ownership cost over 3 years? Over 6 years?

3. Consider the following investments:

• Compute the equivalent annual worth of each project at i=10%, and determine acceptability.

4. An advertising firm needs to borrow $300,000 at 8% interest over nine years. What is the required equal annual payment?

5. Y.I.H.D. Manufacturing purchased a machine costing $200,000 with a useful life of five years and an estimated salvage value of $30,000. If the firm's interest rate is 10%, what is the capital cost?

Paper For Above instruction

In this paper, we analyze several investment and project evaluation problems using Excel, focusing on computation of present values, annual equivalent costs, and acceptability criteria. These problems involve cash flow analysis, depreciation, ownership costs, and financing calculations, which are central in economic decision-making and capital budgeting.

Problem 1: Cash Flows Analysis of Projects A and B

For project A, the cash flows are known except for X, which must be determined to equalize the annual equivalent receipts and disbursements at 10% interest. The cash flows are as follows: initial investment of -$10,000, then annual cash flows of $2,000, X, $2,000, and $4,000 over five years.

Using Excel, one can set up the cash flows in cells and compute the NPV at 10%. The present value of cash inflows and outflows allows the calculation of the equivalent annual cost (EAC). The goal is to find X such that the EAC is the same for both inflows and outflows, ensuring the project is financially balanced under the AE criterion. This can be achieved by solving the equation in Excel using the Goal Seek feature or Solver add-in.

Part (b) involves evaluating project B at 11% interest, calculating its net present value (NPV), and then converting that to an equivalent annual cost. If the AE is acceptable compared to a benchmark or alternative investments, the project can be accepted.

Problem 2: Ownership Cost of a Vehicle

Joey's vehicle cost analysis involves tracking retention value percentages over six years. The retention value after 36 months is 60%, and after 72 months is 30%. Using Excel, we compute the depreciated value over the time horizon, discounting future values at 3%, compounded annually. The ownership cost includes the depreciation expense and the opportunity cost of capital. Calculations involve finding present values of future retained values, subtracting from the initial cost, and then adding carrying costs based on interest rates.

Over three years, the ownership cost primarily comprises depreciation and financing costs, while over six years, the analysis considers continued depreciation and value retention, making Excel essential for accurate computations.

Problem 3: Investment Project Evaluation

This involves calculating the equivalent annual worth (EAW) for each project at 10% interest. First, the present value of cash flows is derived, then divided by the annuity factor for 10%. The acceptability criteria depend on comparison of the EAW to capital costs or other benchmarks. Excel simplifies these computations by applying PV and P/A functions, facilitating quick comparisons and decision-making.

Problem 4: Loan Amortization

Calculating the equal annual payment for a $300,000 loan over nine years at 8% interest involves using the PMT function in Excel. This function considers principal, interest rate, and loan term to produce uniform payments that fully amortize the loan, including interest.

Problem 5: Capital Cost of Machine Investment

The capital cost involves considering the initial machine cost, salvage value, useful life, and interest rate. Using Excel’s capital recovery factor or the PMT function, we compute the equivalent annual cost of the investment, accounting for depreciation and interest. The total capital cost reflects both the investment outlay and the financing costs over the machine’s lifespan.

Conclusion

These problems exemplify fundamental financial analysis techniques in engineering economics, emphasizing the use of Excel for efficient computation. Accurate evaluation of investment opportunities via NPVs, EACs, and capital recovery helps firms make informed decisions aligned with financial goals. Leveraging Excel's financial functions streamlines these calculations, reducing errors and supporting optimal decision-making.

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