Question

please help on problems 1 and 2. thank you.

Exercise 1 The City of lowa City is considering two options to replace broken concrete at the Pedestrian mall, between Clinton and Linn Streets. One of the options implies spending $120,000 using "Grade-A' concrete that has a life of 15 years, with an annual maintenance cost of $5,000. The other option implies using "Grade Super-X" plasticised concrete that has a life of 25 years with no need for annual maintenance. What is the maximum initial investment that the "Grade Super-X" concrete must have in order for that option to be justified, if the City of Iowa City uses a MARR of 6%? Exercise 2 Private business jets produced by Smartair in Wichita KS cost an average of $4.2millions each. Smartair invested $650 million in 2007 and began taking orders 2 years later, in 2009. US corporations ordered a total of 500 jets in 2009, paying only 15% of the cost of the jet as a downpayment at the time of ordering. The rest was agreed to be paid at the moment of delivery. Due to limited production capacity, Smartair started delivering jets in 2012; a total of 100 jets were delivered per year for each of the next five years, from 2012 to 2016. If Smartair's operating costs averaged $40 million for each of the 10 years, what rate of return the company made over the 10-year planning period?

Answer 1

1.

EUAC of Grade A = 120000 * (A/P,6%,15) + 5000

= 120000 * 0.102963 + 5000

= 17355.53

Let maximum initial cost of Super Grade X be P, then

EUAC of Super Grade X = P *(A/P,6%,25) = P * 0.078227

As per given condition

EUAC of Grade A = EUAC of Super Grade X

P * 0.078227 = 17355.53

P = 17355.53 / 0.078227

P = 221861.92 ~ 221862 (Nearest Dollar)

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