For the cash flow diagram shown below. Calculate I He value of Q. Investment in
ID: 1219244 • Letter: F
Question
For the cash flow diagram shown below. Calculate I He value of Q. Investment in a crane is expected to produce profit from its rental of dollar 15,000 the first year it is in service. The profit is expected to decrease by dollar 2,500 each year thereafter. At the end of six years assume the salvage value is zero. At 12 percentage interest the present worth of the profits is nearest to what? Assume you borrowed dollar 50, 000 at an interest rate of I percent per month, to be repaid in uniform monthly payments for 30 years. In the 163^rd payment, how much of it would be interest, and how much of it would be principal? A suburban taxi company is considering buying taxis with diesel engine instead of gasoline engines. The cars average 50, 000 km a year, with a useful life of 3 years for the taxi with the gas engine and 4 years for the diesel taxi. Other comparative information is as follows: Use an annual cash flow analysis to determine the more economical choice if interest is 6 percentage.Explanation / Answer
5.
For Diesel Taxi
Useful life = 4 years
No. of kilometers to be run per year = 50000 km
Vehicle cost = $13000
Mileage = 35 km / liter
Thus, use of fuel = 50000/35 = 1428.571 Liter
Cost of fuel = 48 cents / liter
Annual cost of fuel =1428.571 *.48 = $685.72
Annual repair cost = $300
Annual insurance premium = $500
Resale value = $2000
Discount rate = 6%
Thus,
Present worth of the Diesel Taxi = cost of vehicle + present value of (fuel + annual repair+ insurance) – present value of the resale value
Present worth of the Diesel Taxi = 13000 + (685.72 + 300+500)*(1-1/(1+6%)^4)/6% - 2000/(1+6%)^4
Present worth of the Diesel Taxi = $16563.99
Let, equivalent annual cost = EAC
So,
16563.99 = EAC*(1-1/(1+6%)^4)/6% = EAC*3.465
EAC = 16563.99 / 3.465
EAC = $4780.37
For Gasoline Taxi
Useful life = 3 years
No. of kilometers to be run per year = 50000 km
Vehicle cost = $12000
Mileage = 28 km / liter
Thus, use of fuel = 50000/28 = 1785.714 Liter
Cost of fuel = 51 cents / liter
Annual cost of fuel =1428.571 *.51 = $728.57
Annual repair cost = $200
Annual insurance premium = $500
Resale value = $3000
Discount rate = 6%
Thus,
Present worth of the Diesel Taxi = cost of vehicle + present value of (fuel + annual repair+ insurance) – present value of the resale value
Present worth of the Diesel Taxi = 12000 + (728.57 + 200+ 500)*(1-1/(1+6%)^3)/6% - 3000/(1+6%)^3
Present worth of the Diesel Taxi = $13299.73
Let, equivalent annual cost = EAC
So,
13299.73 = EAC*(1-1/(1+6%)^3)/6% = EAC*2.673
EAC = 13299.73/2.673 = $4975.58
Since, equivalent annual cost of Diesel taxi is lower than the equivalent annual cost of gasoline taxi. It is wise to go with a cheaper option of Diesel taxi.
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