Question

1. Assume that your private university's tuition is $28,000 a) If inflation rate for the tuition is 5% per year calculate what the tuition will cost 20 years from now? b) If general inflation rate for the economy is 3% per year, express that future tuition 20 years from now in real dollars, based on today's rate. 2. The local gas company has asked the planning department of your company to help them plan for future cash flows. They want your company to pay an equal amount at the end of each year for the next 20 years rather than paying the yearly amounts as they become due at the end of each year for the next 20 years. Your current annual utility bill is $100,000. If you expect the inflation rate to average 5% per year, and that the gas company will pay you 8% interest each year for the next 20 years, what equal, annual amount s hould be paid at the end of each year from Year 1 through Year 20? 3. One of the four ovens at a bakery is being considered for replacement. Its salvage value and maintenance costs for several years are given in the table below. A new oven costs $80,000 and this price includes a complete guarantee of the maintenance costs for the first 2 years and it covers a good proportion of the maintenance costs for Years 3 and 4. The salvage value and maintenance costs are also summarized in the table. ld Oven ew Oven alvage value at end o vage value at end Maintenance aintenance costsof year 500 700 Year vear osts 0,000 17,000 2 14,000 11,000 7000 80,000 5,000 0,000 1000 800 2,000 Both the old and the new oven have similar productivity's and energy costs. Should the oven be replaced this year, if the MARR equals 10%? A machine was installed 5 years ago. Its market value is now $15,000 and is expected to decline by 10% per year over the next five years. It is projected that this machine will be operational for another five years, after which time it will be scrapped (no salvage value). This year, its annual costs are estimated as $1500, but will increase by $1000/year thereafter. A new machine is now available for $20,000. It has no annual costs over its 5-year minimum cost life (i.e., economic life using an 8% MARR, determine when (if at all) should the existing machine be replaced with the new machine? 4.

Answer 1

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