Question

year | CPI |

0 | 110 |

1 | 130 |

2 | 145 |

3 | 170 |

4 | 150 |

5 |
110 |

The annual fuel costs required to operate a small solid-waste
treatment plant are projected to be $3 million without considering
any future inflation. The best estimates indicate that the

annual market interest rate (i) will be 8%. You can find the
general inflation rate for each year based on the below table which
presents the CPI values over the years (year 0 to year 5). If the
plant has a remaining useful life of five years, what is the
present equivalent of its fuel costs? You must use actual-dollar
analysis (i.e. you must first find the actual dollar values for
each annual constant dollar amount). Otherwise, you will not be
given any credits.

Answer #1

Year |
0 |
1 |
2 |
3 |
4 |
5 |
||||

CPI | 110 | 130 | 145 | 170 | 150 | 110 | ||||

Inflation % | 18.18% | 11.54% | 17.24% | -11.76% | -26.67% | (finding growth rate in CPI) | ||||

Fuel costs | 3.0000 | 3.5455 | 3.9545 | 4.6364 | 4.0909 | 3.0000 | (Applying growth rates to fuel costs) | |||

Present value factor | 1.0000 | 0.9259 | 0.8573 | 0.7938 | 0.7350 | 0.6806 | (Discount factors using rate = 8%) | |||

(using rate as 8%) | ||||||||||

PV (fuel costs) | 3.0000 | 3.2828 | 3.3904 | 3.6805 | 3.0069 | 2.0417 | (Multiplying discount factors and fuel costs) | |||

NPV | 18.4024 | (sum of PV(fuel costs)) | ||||||||

(sum of PV(fuel costs)) |

Year 0
Year 1
Year 2
Year 3
Year 4
TOTAL
Project A
$ (200,000.00)
$ 25,000.00
$ 50,000.00
$ 75,000.00
$ 100,000.00
$ 250,000.00
Project B
$ (200,000.00)
$ 50,000.00
$ 75,000.00
$ 50,000.00
$ 75,000.00
$ 250,000.00
Project C
$ (200,000.00)
$ 75,000.00
$ 75,000.00
$ 50,000.00
$ 50,000.00
$ 250,000.00
1. You have $200,000 to invest in the above three projects with
corresponding cash flows. The discount rate is 8%. Of the three
projects, which, according to...

Year 0
Year 1
Year 2
Year 3
Year 4
Totals:
Project A
$ (200,000.00)
$ 25,000.00
$ 50,000.00
$ 75,000.00
$ 100,000.00
$ 250,000.00
Project B
$ (200,000.00)
$ 50,000.00
$ 75,000.00
$ 50,000.00
$ 75,000.00
$ 250,000.00
Project C
$ (200,000.00)
$ 75,000.00
$ 75,000.00
$ 50,000.00
$ 50,000.00
$ 250,000.00
1. If I decide to borrow my 200K required investment at a rate
of 10%, which project would be the best option?
A. Project A
B. Project...

Year
Quarter
Sales ($000)
2015
1
$400
2015
2
2,000
2015
3
3,500
2015
4
260
2016
1
740
2016
2
2,720
2016
3
4,900
2016
4
520
2017
1
1,500
2017
2
3,100
2017
3
6,520
2017
4
960
2018
1
1,840
2018
2
4,040
2018
3
7,680
2018
4
1,640
2019
1
3,520
2019
2
5,640
2019
3
8,900
2019
4
3,620
Problem
2
House Depot’s quarterly sales of a lawn, landscaping, and
gardening items – like lawnmowers,...

YEAR
PROFITS AFTER TAXES
1
$17,000,000
2
20,000,000
3
18,000,000
4
22,000,000
5
24,000,000
Dividend
policies)
Final earnings estimates for Chilean Health Spa & Fitness
Center have been prepared for the CFO of the company and are shown
in the following table:
. The firm has
7,600,000
shares of common stock outstanding. As assistant to the CFO,
you are asked to determine the yearly dividend per share to be paid
depending on the following possible policies:a. A
stable dollar dividend...

Year
Investment A
Investment B
0
-$5,000,000
-5,000,000
1
$1,500,000
$1,250,000
2
$1,500,000
$1,250,000
3
$1,500,000
$1,250,000
4
$1,500,000
$1,250,000
5
$1,500,000
$1,250,000
6
$1,500,000
$1,250,000
7
$2,000,000
$1,250,000
8
0
$1,600,000
You have been hired as a consultant for Pristine Urban-Tech
Zither, Inc. (PUTZ), manufacturers of fine zithers. The market for
zithers is growing quickly. The company bought some land three
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waste dump site but has...

1) What would you prefer, an annual cash flow of $600 for 4
years, or a lump sum payment of $2,500 in year 4? Your discount
rate is 4.25%. Please discuss.
2) Our refinery has a remaining life of 3 years, and is fully
utilised processing 1.5 million barrels of crude oil per annum at a
processing cost of $10.00 real per barrel. By modifying the
refinery at a cost of $6 million we can reduce the processing cost
to...

2. Suppose you will receive $1,000 in 4 years. If your
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amount if interest is compounded every six months? (8 points) What
is the effective annual rate? (8 points) 3. Suppose you have
deposited $10,000 in your high-yield saving account today. The
savings account pays an annual interest rate of 4%, compounded
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You will continue to make additional...

Problem Set 4
If you insulate your office for $10,000, you will save $1,000 a
year in heating expenses. These savings will last forever.
What is the NPV of this investment when the cost of capital is
8%? 10%?
What is the IRR?
A project costs $5,000 at t = 0 and will generate annual cash
flows of $750 for 10 years, starting at t = 1. The discount rate is
6%.
What is the NPV?
What is the IRR?...

I've answered questions 1-4 (answers are bolded) but I am stuck
on 5 and 6. Any help is appreciated. Thank you
Assume i=10%
1. Today (t=0) your daughter is born (congratulations and good
luck with that!) and you decide to start saving for her education.
You figure that you will need to pay for 5 years of undergraduate
engineering at $20,000 per year (from t=18 through t=22), and two
years for graduate school at $30,000 per year (t=23 and t=24)....

1. A city with 4% unemployment and no inflation is considering
building a new stadium for its professional football team. The team
currently plays in an old stadium owned by the city. If a new
stadium were to be built, it would cost city $400M (M for million)
to demolish the old one and build the new one. The new stadium
would be expected to last for 40 years and the city would finance
the costs of the project by...

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