Reference no: EM133187290

Questions -

Q1. You are considering options from two roofing contractors to fix your roof. Option A will last you 5 years and cost $5,300 whereas Option B will last 10 years and cost $8,200. If you are planning to take a home equity loan from your bank, at what interest rate would you be indifferent to the two options.

Q2. Machine A which is a basic model costs $25,000 and lasts 5 years. At the end of the 5 years it has a salvage value of $1,500 and its market value at the end of 3 years is $7,000. An enhanced model, Machine B sells for $36,000 and has a life of 8 years with a salvage value of $8,500. The benefit that these two machines are anticipated to provide is $9,500 per year, indefinitely. Looking at an 8-year window with a rate of 5% APR compounded yearly, what is the difference between the net present worth of Machine B over Machine A? (Hint: the second copy of Machine A can be sold at the end of the 8th year for the price that it will command after a 3-year life.)

Q3. For two mutually exclusive machines, which machine will you select if the MARR is 10% based on the concept of IRR or B/C ratio?

Machine A: Cash flows for Years 0 to 6: (-$2000), $500, $500, (-$1000), (-$1000), $3500 and $4000.

Machine B: Cash flows for Years 0 to 6: (-$3000), $0, $1000, (-$500), $1800, (-$3500) and $9000.

Q4. A company is offering you terms for payment on an invoice of $15,000 of "Discount 3% in 10 days Net 30 days." This means that you can either pay 97% of the amount due in 10 days or pay the entire amount in 30 days. What is the effective rate per year compounded yearly that you will be able to earn on the amount if you take the discount?