Question

please help in problems 1 and 2. thank you!

Exercise 1 Calculate AW for a project whose annual cash flows are shown here. The annual interest rate is 14% i = 14 % 700 700 1,100 700 1 1,100 700 1700 A 700 T 300 » 700 1 200 1 1 5 6 7 8 9 10 11 12 Exercise 2 There are two types of engines that are being considered for new taxi cabs in New York. The type of motor used has an impact on factors like initial cost of vehicle, annual cost of maintenance, etc. (see table below for details). The average number of miles that a taxicab drives in New York is 60,000 miles/year Use AW analysis to determine which type of engine should be selected, if the interest rate is 7%. using engine using engine 29,000 1,700 3.2 initial cost of taxicab Maintenance (S/year) Fuel cost ($/callon) Mileage (miles/gal) Expected life of taxicab (years) Salvage value, $ 21,000 1,200 3.6 25 4 4,500 30 5 2,000

Answer 1

1. Cash flow is repeating in block of 4 yrs.

if we find AW of cash flows from EOY 1 to EOY 4, it would be same as AW of the whole series

Present worth of cash flow from EOY 1 to EOY 4 = 300 * (P/A,14%,3) + 400 * (P/G,14%,3) + 700 * (P/F,14%,4)

= 300 *2.321632 + 400 *2.119411 + 700 *0.592080

= 1958.71

AW from EOY 1 to EOY 4 = 1958.71 * (A/P,14%,4) = 1958.71 * 0.343205 = 672.24

2.

Annual gasoline cost of using engine X = 60000 / 25 * 3.6 = 8640

Annual gasoline cost of using engine Z = 60000 / 30 * 3.2 = 6400

AW of using engine X = -21000 * (A/P, 7%,4) -1200 - 8640 + 4500 * (A/F, 7%, 4)

= -21000 *0.295228 -1200 - 8640 + 4500 *0.225228

= -15026.26

AW of using engine Z = -29000 * (A/P, 7%,5) -1700 - 6400 + 7000 * (A/F, 7%, 5)

= -29000 *0.243891 -1700 - 6400 + 7000 *0.173891=

= -13955.60

As annual cost of engine Z is less, it should be selected