Problem 1
A commercial real estate developer plans to borrow money to finance an upscale mall
in an exclusive area of the city. The developer plans to get a loan that will be repaid
with uniform payments of $400,000 over a 15-year period beginning in year 2 and
ending in year 15. How much will a bank be willing to loan at an interest rate of 10%
per year?
Problem 2
A large water utility is planning to upgrade its SCADA system for controlling well
pumps, booster pumps, and disinfection equipment for centralized monitoring and
control. Phase I will reduce labor and travel costs by $28,000 per year. Phase II will
reduce costs by an additional $20,000 per year, that is $48,000. If phase I savings occur
in years 1, 2, and 3 and phase II savings occur in years 4 through 10, what is the
equvalent future worth of the upgraded system in year 10 at an interest rate of 7% per
year?
Problem 3
Costs associated with the manufacture of miniature high-sensitivity piezoresistive
pressure transducers is, $73,000 per year. A clever industrial engineer found that by
spending $16,000 now to reconfigure the production line and reprogram two of the
robotic arms, the cost will go down to $58,000 next year and $52,000 in years 2 through
5. Using an interest rate of 10% per year, determine the present worth of the savings
due to the reconfiguration. (Hint: Include the reconfiguration cost.)
Note:
- students should draw net cash flow (NCF) to support your answers.
- Please use all three methods of calculation: (1) manual computing by using
mathematic equations; (2) computer with spreadsheets Excel function; and (3)
standard notation equation computing as mixing between (1) and (2)!
