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6.2 Problems

1. If $100,000 were borrowed for 3 years at a %10 interest rate, how much would be due at the end of the loan. (ans. $133,100)

2. If $100,000 were borrowed for 3 years at a %10 interest rate, how much would be due at the end of the loan if $20,000 were repaid each year. (ans. $66,900)

3. A machine was purchased for $100,000 and generates $20,000 per year income. How many years would be required to break even if the company charged a 10% internal interest rate. (ans. 7.27 yrs)

4. If a machine is purchased for $100,000 and the company charges %10 for the use of money, what annual return is required for the machine to break even in 3 years. (ans. $40,211.49)

5. A machine costs $100,000 and will be sold for salvage value in 3 years for $30,000. What is the Equivalent Uniform Annual Cost for the machine assuming the company uses an interest rate of 10%? (ans. $31,148.69)

6. A machine costs $100,000 and will be sold for salvage value in 3 years for $30,000. The alternative is to lease a machine for $40,000 per year. If the company uses an interest rate of 10% which option should be chosen? (ans. purchasing is a better option)

7. An existing manual production line costs $100,000 to operate per year. A new piece of automated equipment is being considered to replace the manual production line. The new equipment costs $150,000 and requires $30,000 per year to operate. The decision to purchase the new machine will be based upon a 3 year period with a 25% interest rate. Compare the present value of the two options. (ans. PVmanual $195,200, PVnew $208,560)

8. Write a general computer program to solve the following project costing problem. Test the program using the numbers provided. The program should accept the initial cost of equipment (C), an annual maintenance cost (M), an annual income (R), a salvage value (S), and an interest rate (I). The program should then calculate a present worth and the ROI.

9. Write a program that determines the ROI for a project given the project length, initial cost, salvage value, and projected income. To test the program assume that the project lasts for 36 months. The company standard interest rate is 18%. The equipment will cost $100,000 new and have a slavage value of $10,000. The annual income will be $50,000.