Question

1. A magazine subscription is $ 12 annually, $6 semi-annually, or $ 35 for a 3-year subscription. If the value of money is 12%, which choice is better? A) Annual subscription, B) 3-year subscription C) Semi-annual subscription 2. A tunnel to transport water through the Lubbock mountain range initially cost $1,000,000 and has expected maintenance costs that will occur in a 6-year cycle as shown. End of year: 1 Maintenance $ 35,000 35,000 The capitalized cost at 8% interest is closest to: 35,000 45,000 45,000 60,000 a) $1,003,300: b) $1,518,400: c) $41,468.8 d) $13,018,350: e) $10, 250, 100: f) $42,500 3. A project being considered by XYZ Company will have a $100,000 in construction costs each of the three years of the project. Income of $100,000 will begin flowing in year four and continue through year 10. The net present worth of the project assuming 4% rate of interest is a) $184,841; b) $188,513; c) $251,089; d) $256,078; e) $301,532; ) $ 327,100 4. Dorf Motors Manufacturing must replace one of its tow motors. The net present cost of alternative A is $8,956, alternative B is $ 5,531 and alternative C $4,078. Alternative A is expected to last for 12 years and has an expected life of seven years, while alternative C is expected to last for five years. If interest rate is 5%, the alternative that should be chosen is a) A; b) B; c) C; d) No alternative should be chosen 5. Given the cash flow table below, Alice was asked to compute the value of P for the cash flow at 8% interest. She wrote four equations. Circle the correct equation Year Cash Flow P 1 1 2 ,000 1,150 1,300 1,450 1,600 1,600 1,600 P A) B C) P P = 1,000(P/A, 8%, 8) + 150(P/G, 8%, 8) - 150(P/G, 8%, 4) (P/F, 8%, 4) = 1,600(P/A, 8%, 8) - 600(P/A, 8%, 5) - 150(P/G, 8%, 4) P = 150(P/G, 8%, 4) + 1,000(P/A, 8%, 4) + 1,600(P/A, 8%, 4) (P/F, 8%, 4) = 1,600(P/A, 8%, 8) + 150(P/G, 8%, 8) - 150(P/G, 8%, 4) (P/F, 8%, 4) D

Answer 1

Answer 1

Total cost today of 3 year subscription is $35.

Total cost today of annual subscription will be

PV of $12 at the end of 1 year= 12/(1+12%)=12/1.12=$10.71

Pv of $12 at the end of 2 year=12/(1+12%)^12=12/1.12^2=12/1.2544= $9.57

Total cost=12+10.71+9.57=$32.28

Hence annual is better than 3 year subscription.

PV of $6 paid at the end of half year= 6/(1+12%)^0.5=6/1.12^0.5=6/1.058=$5.67

Total annual cost=6+5.67=$11.67

Hence semi annual annual cost is less than annual subscription cost. Hence semiannual is best.

Hence C is correct