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0.7 pts Question 1 Fresh Foods is considering the purchase of a new packaging system. The system costs $83,732. The company plans to borrow three-quarters (3/4) of the purchase price from a bank at 8% per year compounded annually. The loan will be repaid using equal, annual payments over a 6-year period. The payments will be made at the end of each year for the life of the loan, with the first payment occurring at the end of year 1. The system is expected to last 16 years and have a salvage value of $13,160 at the end of its life. Over the 16-year period, the company expects to pay $850 per year for maintenance. In addition, the system will require an overhaul at the end of year 8 which will cost $13,294. The system will save $3,738 per year because of efficiencies. The company uses a MARR of 2% to evaluate investments. What is the equivalent uniform annual worth (EUAW) of this system? Enter your answer as follows: 1234 Round your answer. Do not use a dollar sign ("$"), any commas ("") or a decimal point ("."). Hints: The loan interest is at a different interest rate than our MARR. How will this impact the problem? The remainder of the purchase price (the amount we do not take out in the form of a loan) would be considered our initial cost, at year 0

Answer 1

		Present Value of Cash Flow;
		(Cash Flow)/((1+i)^N)
		i=discount Rate=MARR=2%=0.02
		N=Year of cash Flow
		INTEREST AND PRINCIPAL REPAYMENT ON AMOUNT BORROWED
	Pv	Amount Borrowed =(3/4)*83732=	$62,799
	Nper	Number of years of repayment	6
	Rate	Interest Rate	8%
	PMT	Annual repayment for 6 years	$13,584	(Using PMT function of excelwith Rate=8%,Nper=6, Pv=-62799
		REPAYMENT SCHEDULE
		Year		1	2	3	4	5	6
	A	Beginning Balance		$62,799	$54,239	$44,993	$35,008	$24,225	$12,578
	B	Amount of annual payment		$13,584	$13,584	$13,584	$13,584	$13,584	$13,584
	C=A*8%	Interest		$5,024	$4,339	$3,599	$2,801	$1,938	$1,006
	D=B-C	Principal		$8,560	$9,245	$9,985	$10,784	$11,646	$12,578
	E=A-D	Ending Balance		$54,239	$44,993	$35,008	$24,225	$12,578	$0
		Cash Invested in system =83732-62799	$20,933
										20 $20.933 1 2 3 4 5 6 7 8 9 10 11 12 13 14 15 16 ($20,933) $3,738 -$5,024 -$850 $3,738 -$4,339 $850 $3,738 -$3,599 -$850 $3,738 - $2,801 - $850 $3,738 - $1,938 -$850 $3,738 -$1,006 - $850 $3,738 $0 -$850 $3,738 $3,738 $0 $0 -$850 -$850 $13,294 $0 $0 $3,738 $0 -$850 Cash Invested in system=83732-62799 21 N Year InitialOutlay(Cash invested in system) Annual Cash Inflows: Annual savings 25 (2) Interest Cost for amount borrowed 26 (3) Annual Maintenance Cost 27 (4) Cost of Overhaul 28 (5) Cash outflow for repayment of principal .16) Terminal cash inflow for salvage 30 CF=a+(1)+(2)+(3)+(4)+(5)+(& PROJECT NET CASH FLOW 31 PV=CF/(1.OZN) PRESENT VALUE OF NET CASHFLOW 32 PW=Sumof PV Net Present Value(PW) of the Project UniformAnnual Worth (EUAW) Note: Taxrate is not mentioned Assumed to be 0% $3,738 $3,738 $3,738 $3,738 $3,738 $3,738 $0 $0 $0 $0 $0 $0 -$850 -$850 -$850 -$850 - $850 -$850 -$8,560 -$9,245 -$9,985 - $10,784 -$11,646 -$12,578 $0 $0 $0 $0 $0 -$20,933 -$10,696 -$10,696 -$10,696 -$10,696 - $20,933 -$10,487 -$10,281 -$10,079 -$9,882 -$59,573 ($4,388) 3PMT Function of excelwithRate=2%, Nper=16, Pv=5$ -$10,696 -$9,688 -$10,696 -$9,498 $2,888 -$10,406 $2,514 -$8,881 $2,888 $2,417 $2,888 $2,369 $2,888 $2,888 $2,888 $2,323 $2,277 $2,233 $0 $0 $0 $13,160 $2,888 $2,888 $16,048 SUM $2,189 $2,146 $11,690 - $59,573 H11 x fc =PMT(H10, H9,-H8) 7 8 Pv 9 Nper 10 Rate 11 PMT 12 H I J K L INTEREST AND PRINCIPAL REPAYMENT ON AMOUNT BORROWED Amount Borrowed =(3/4)*83732= $62,799 Number of years of repayment Interest Rate 8% Annual repayment for 6 years $13,584 | (Using PMT function of excelwith Rate=8%,Nper=6, Pv=-62799 REPAYMENT SCHEDULE H33 : * ~ fic =PMT(2%,16,-432) к $3,738 $5,024 $850 $3,738 -$4,339 $850 $3,738 $3,599 $850 $3,738 $2,801 $850 $8,560 $9,245 $9,985 $10,784 24 Annual savings 25 Interest Cost for amount borrowed 26 Annual Maintenance Cost 27 Cost of Overhaul 28 Cash outflow for repayment of principal | 29 Terminal cash inflow for salvage 30 PROJECT NET CASH FLOW 31 PRESENT VALUE OF NET CASH FLOW 32 Net Present Value(Pw) of the Project 33 UniformAnnual Worth (EUAW) 34 $10,696 $10,487 $10,696 $ 10,281 $10,696 $10,079 $10,696 $9,882 $20,933 $20,933 $59,573 ($4,388) (Using PMT Function of excelwith Rate=2%, Nper=16, Pv=59573))