Fundamentals of Engineering Economics

Business

Quiz 5 :
Present-Worth Analysis

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Quiz 5 :
Present-Worth Analysis

Given information: • Price of equipment is $1,500,000. • Revenue is $650,000 per year. • Manufacturing cost is $220,000 per year. • Fixed cost is $80,000. • Maintenance cost is $45,000 per year. • Tax payment is $58,000. • Salvage value is $1,000,000. • Time period 10 years. Net cash flow: Net cash flow can be calculated as follows: img Net cash flow is img . Net cash flow: Net cash flow can be calculated as follows: img …… (1)Cash flow in year 1: Substitute the respective values in equation (1) to calculate cash flow in year 1. img First year cash flow is img . Cash flow table: Table -1 shows the cash flow for 10 years that obtained by using equation (1). In the tenth year salvage value has to add with the cash flow. Table-1 img

Given information: • Cost of an investment project is $90,000. • Revenue per year is $30,000. • Time period is five years. Payback period: Payback period can be calculated by using the cumulative cash flow: img …… (1)Substitute the respective values in Equation (1) to calculate the first year cumulative cash flow value. img Hence, first year cumulative cash flow is img . Cash flow and cumulative cash flow: Hence, similar calculation is followed in Table-1 by using the Equation (1) to obtain the cumulative cash flow for each year. Table-1 img Table -1 show that the total investment is fully paid at the third year. Hence, option b is correct.

Given information: • Price of the product is $65,000. • Production per year is 30,000 kilo gram. • Price increases by $2 per kilo gram; hence increased revenue is img . • Production increases by 4,000 kilo gram; hence, total production is img . • Operating hour is 3,500. • Saving is $25 per hour. • Time period is 8 years. a.Cash inflow: Total cash inflow can be calculated as follows: img Total cash inflow is img . Cash outflow Total cash outflow can be calculated as follows: img Total cash outflow is img . Net cash flow: Net cash flow can be calculated as follows: img Net cash flow is img .

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