Question

B. Problems and Questions The Superior Landscaping Company must replace one or two of his aging utility trucks in calendar year 2020. The key parameters of the three trucks under scrutiny are provided below Parameters 1. Initial Cost GM 265,000 RAM 275,000 ($) 2. Revenues FORD 235,000 220,000 at EOY1 increasing by 2% annually thereafter. 110,000 at EOY1 to EOY3. 240,000 at EOY1 increasing by $3,000 annually thereafter. 254,000 at EOY1 increasing by 1.0% annually thereafter. ($) 3. Operating costs 145,000 at EOY1 decreasing by $1,000 annually thereafter 183,000 at EOY1 decreasing by 1% annually thereafter. ($) 6,000 17,000 12,000 4. End-of-life salvage value ($) 5. Useful life (years) • All parameter values are fictitious. • EOY = End-of-year • Industry Standard = 3 years • MARR = 10% 1. Ford's Net Present Worth (NPW) (rounded to the nearest $100) of a) $45,100; b) $51,500; c) $53,400; d) $56,700. RAM's NPW (rounded to the nearest $100) is a) $69,800; b) $76,300; c) $79,300; d) $83,400. GM's Net Future Worth (NFW) at EOY4 (rounded to the nearest $100) is a) $95,500; b) $98,600; c) $100,200; d) $102,800. Ford's Annual Equivalent Worth (AEW) (rounded to the nearest $100) is a) $21,500; b) $24,600; c) $25,900; d) $28,200. RAM's AEW (rounded to the nearest $100) over 18 years it was repeated several times) is a) $17,700; b) $19,200; c) $20,800; d) $21,100.

Answer 1

Answer 1

Ford Net Present Worth
Year	Cash Inflow	Cash OutflowFlow	Net Cash Flow	PVIF	PV of Cash Flows
0	0	(2,35,000.00)	(2,35,000.00)	1.00	(2,35,000.00)
1	220000	(1,10,000.00)	1,10,000.00	0.91	1,00,000.00
2	224400	(1,10,000.00)	1,14,400.00	0.83	94,545.45
3	228888	(1,10,000.00)	1,18,888.00	0.75	89,322.31
3	6000	-	6,000.00	0.75	4,507.89
					53,375.66
				Rounded off	53,400.00

Answer 4

Annual Equivalent Worth = Net Present Worth / PVIFA = PVW of Ford / PVIFA @ 10% for 3 Years

= 53400 / 2.4869 = 21,472 (Rounded off to $21,500)

Answer 2

RAM Net Present Worth
Year	Cash Inflow	Cash OutflowFlow	Net Cash Flow	PVIF	PV of Cash Flows
0	-	(2,75,000.00)	(2,75,000.00)	1.00	(2,75,000.00)
1	2,54,000.00	(1,83,000.00)	71,000.00	0.91	64,545.45
2	2,56,540.00	(1,81,170.00)	75,370.00	0.83	62,289.26
3	2,59,105.40	(1,79,358.30)	79,747.10	0.75	59,915.18
4	2,61,696.45	(1,77,564.72)	84,131.74	0.68	57,463.11
5	2,64,313.42	(1,75,789.07)	88,524.35	0.62	54,966.66
6	2,66,956.55	(1,74,031.18)	92,925.37	0.56	52,453.95
6	12,000.00	-	12,000.00	0.56	6,773.69
					83,407.29
				Rounded off	83,400.00

Answer 5

NPW means Value at Year 0

If the above cycle is repeated 3 times i.e till 18 years PV's will be as follows:

Year	Values	PVIF	PVs
0	83,407.29	1	83,407.29
6	83,407.29	0.564474	47,081.24
12	83,407.29	0.318631	26,576.13
			1,57,064.66

AEW = 157064.66 / PVIFA @ 10% for 18 years = 157064.66 / 8.2014 = 19150.93 (Rounded off to $19200)

Answer 3

GM Net Future Worth
Year	Cash Inflow	Cash OutflowFlow	Net Cash Flow	PVIF	PV of Cash Flows
0	0	(2,65,000.00)	(2,65,000.00)	1.00	(2,65,000.00)
1	240000	(1,45,000.00)	95,000.00	0.91	86,363.64
2	243000	(1,44,000.00)	99,000.00	0.83	81,818.18
3	246000	(1,43,000.00)	1,03,000.00	0.75	77,385.42
4	249000	(1,42,000.00)	1,07,000.00	0.68	73,082.44
4	17000	-	17,000.00	0.68	11,611.23
					65,260.91
	Future value of $ 1 for 4 years at 10% = 1.4641
	FV of GM for 4 year = 65260.91 * 1.4641 = 95548 (Rounded off to 95500)