Question

1- For the following cash flow, Find: End of period 0 Cash flow -$1000 -$3000 S5000 S6000 S7500 a- Net present worth for at a MARR interest rate) of 8%. - Determine whether the project accepted remain indifferent or rejected Why? C- What will be the net future worth of the project at project termination if you decide to use the investment pool d-Suppose that you borrowed the fund of the project, Construct a table that shows the project balance at cach period e-Draw the project balance diagram and show the following: - Breaking even point. - Discounted payback period. - Negative project balance area. - Positive project balance area. -Net future worth.

Please refer to Fundamentals of engineering economics book version 4ed Ch. 5.3

Answer 1

1 End of Period Cash Flow PV Factor @MARR @ 8% -1000 -3000 0.92592593 5000 0.85733882 6000 0.79383224 7500 0.73502985 -1,000 -2,778 4,287 4,763 5,513 10,785 a) b) Net Present Worth 10,785 Project should be accepted as Net present valur of future cash flow is more than initial cost in year 1 & 2 C) End of Period Cash Flow FV factor Calculation of FV factor Future worth at end of Period 4 0 1000 1.36048896 1.08*1.08*1.08*1.08 1360.48896 3000 1.259712 1.08*1.08*1.08 3779.136 5139.62496 As details regarding borrowing is not provided in Question. The same cannot be done d) e) Discounted Payback Period End of Period Cash Flow PV Factor @ MARR @ 8% 0 -10001 -3000 0.92592593 5000 0.85733882 6000 0.79383224 7500 0.73502985 -1,000 -2,778 4,287 4,763 5,513 509 Remaining 509 will get covered in year 3 SO Total Discounted Pa 2 Year 39 Days (365/4763*509) Final asnwer 2 years and 39 days