What is the effective interest rate

Assignment Help Econometrics

Reference no: EM13180766

1. John Davis, a recent IE graduate from Tennessee Technological University, bought an SUV for $30,000 with a down payment of $10,000. John had a little business on the side and did not have a girlfriend when he was at school and hence he was able to save the $10,000 for his dream car. He expects to take good care of the car and the dealership, owned by John's uncle, agrees to take the car back for $8,000 at the end of 4 years.

a. If the monthly payment is $400, what is the nominal interest rate on this loan?

b. What is the effective interest rate?

2. Fancy Gadgets, Inc. has developed a new Thing-A-May-Jig at a cost of $2,000,000. Projected profits from the sale of Thing-A-May-Jigs for the next five years are: $300,000, $400,000, $500,000, $600,000, and $250,000. At the end of the fifth year, the production equipment associated with the Thing-A-May-Jig project will be disposed of for $750,000. Determine the rate of return for the Thing-A-May-Jig project.

3. Barry, a Texas Crude Company engineer who did not take Engineering Economy while studying at Tech, recommended that Texas Crude purchase a special tool to reduce the cost of pumping oil out of the bayous of St. Martin Parish. As a result of Barry's recommendation, Texas Crude purchased the tool for $30,000 on January 1, 2005.

By January 1, 2006, the tool had saved a total of $5,000 and went on line full time. After going on line full time, the tool saved Texas Crude $9,000 each year for the next three years and Barry was happy. However, Barry recommended the "el-cheapo" model, and it started breaking down during the early part of year five, and ended up by saving only $4,000 during year five.

It was scrapped as being unusable at the end of year five, and had a zero salvage value. Barry told his boss that his recommendation had been correct, as it had saved Texas Crude $6,000 and that is a savings of 20%.

Use a MARR of 10% and evaluate the effectiveness of the tool and the correctness of Barry's recommendation.

4. A 10-year, 12%, $1,000 bond that pays dividends quarterly can be purchased for $900. If the bond is purchased and pays as scheduled,

a. what nominal rate of return will the purchaser receive?

b. what effective rate of return will the purchaser receive?

Reference no: EM13180766

Questions Cloud

Explain an electrochemical cell is constructed by coupling : An electrochemical cell is constructed by coupling a Cu(II)/Cuhalf-cell with an Ag(I)/Ag half cell. The concentration of Cu(II)and Ag(I) are both 0.010 M. The observed potential

State what is the q solution in jouls and what is the q rxn : what is the q solution in Jouls and what is the q rxn in Joules? What is the Delta H rxn in KJ/mo of HNO3 neutralized?

Derive the short-run market supply curve : Suppose that there are 80 firms in a market, each with the following cost function: C(q) = 100 + 4q^2 A.) Derive the short-run market supply curve. B.) Suppose the market demand is Qd= 1280 - 30P Find the equilibrium market quantity and price.

A peanut is burned in a calorimeter made from an aluminum : A peanut is burned in a calorimeter made from an aluminum can. The peanut weighed 0.780 g before combustin and .054 g after combustion. The temperature change of aluminum can filled with 200 ml of water was 15.3. (Density of water = 1.00g/C)

What is the effective interest rate : Barry, a Texas Crude Company engineer who did not take Engineering Economy while studying at Tech, recommended that Texas Crude purchase a special tool to reduce the cost of pumping oil out of the bayous of St. Martin Parish. As a result of Barry'..

Explain what would be the concentrations of acetic acid : What would you expect to happen if you combined 10.0mL of 10^-2 M acetic acid and 5.0mL of 10^-2 M sodium hydroxide? What would be the concentrations of acetic acid and sodium acetate in this solution

Compute the equilibrium constant from an absorbance value : calculate the equilibrium constant from an absorbance value but my professor never told us how to calculate this.

How does quantity of homes supplied change in the long run : The market for corn is currently in market equilibrium. Graph this situation. On your graph show what happens to the quantity of corn and the price in the market as the use of ethanol fuels becomes more widespread at the same time that a drought d..

Explain what is the concentration of the resulting solution : If one pipet volume of each of the following pipets (2, 5, 10 mL) of a 2.56x10-1 M sample are added to a 25 mL volumetric flask and it is filled to the line with water and well mixed, what is the concentration of the resulting solution?

User Account

All Pages