Reference no: EM132955545

1- Marsha Jones has bought a used Mercedes horse transporter for her Connecticut estate. It cost $46,000. The object is to save on horse transporter rentals.

Marsha had been renting a transporter every other week for $211 per day plus $1.55 per mile. Most of the trips are 80 or 100 miles in total. Marsha usually gives Joe Laminitis, the driver, a $45 tip. With the new transporter she will only have to pay for diesel fuel and maintenance, at about $0.56 per mile. Insurance costs for Marsha's transporter are $1,750 per year.

2-Air conditioning for a college dormitory will cost $2.4 million to install and $155,000 per year to operate at current prices. The system should last 16 years. The real cost of capital is 6%, and the college pays no taxes. What is the equivalent annual cost? (Enter your answer in dollars not in millions and round your answer to 2 decimal places.)

3- You own an oil pipeline that will generate a $2.1 million cash return over the coming year. The pipeline's operating costs are negligible, and it is expected to last for a very long time. Unfortunately, the volume of oil shipped is declining, and cash flows are expected to decline by 2.0% per year. The discount rate is 5%.
a. What is the PV of the pipeline's cash flows if its cash flows are assumed to last forever?
b.. What is the PV of the cash flows if the pipeline is scrapped after 15 years?

4-If the present value annuity factor is 3.8896, what is the present value annuity factor for an equivalent annuity due if the interest rate is 9 percent?
b- If the present value of $1 received n years from today at an interest rate of r is 0.621, then what is the future value of $1 invested today at an interest rate of r% for n years?

5-a. New engineering estimates raise the possibility that capital investment will be more than $12 million, perhaps as much as $15 million. On the other hand, you believe that the 20% cost of capital is unrealistically high and that the true cost of capital is about 11%. Assume straight line depreciation. Calculate the NPV under these alternative assumptions.

b. Continue with the assumed $15 million capital investment and the 11% cost of capital. What if sales, cost of goods sold, and net working capital are each 10% higher in every year? Assume straight line depreciation. Calculate the NPV based on these assumptions.