Académique Documents
Professionnel Documents
Culture Documents
Prepared by:
Eng. Ahmed Taha
Chapter 1
i = 15 %
Chapter 1
• Scenario a:
Interest/y = 1,000,000 (0.06) = $60,000 per year
Total interest = Pni = 1,000,000 (10)(0.06)
= $600,000
Chapter 1
Year P F Interest
• Scenario b:
F: the future .
value for the .
.
given year .
P: the present .
.
value for the .
given year Total .
• Scenario a: i= 0%
F= 2500 (12) = $30,000
Chapter 2
• Scenario b:
F=?
i = 3% i = 3% year
F= 2500(F/A,3%,12)
0 1 $2500 12
= 2500(14.1920)
= $35,480
• Scenario c:
F=?
i = 16% year
i = 16%
F= 2500(F/A,16%,12)
0 1 $2500 12
= 2500(30.85)
= $77,125
Chapter 2
• You have a just gotten a hot tip that you should buy
stock in the GRQ company. The stock is selling for $25
per share. If u buy 500 shares and the stock increases to
$30 per share in 2 years what rate of return would u
realize on your investment.
i = ?%
25(F/P,i,2)= 30
0 1 2 year
(F/P,i,2) = 1.2
P=25 F=30
(1+i)2= 1.2
i = 9.54%
Chapter 2
• You have just inherited $100,000 from your favorite
uncle. His will stipulated that a certain bank will keep
the money on deposit for you. His will also stipulated
that you can withdraw $10,000 after 1 year, $11,000
after 2 years, and amounts increasing by $1000 per year
until the amount is exhausted. If it takes 18 years for the
inheritance to go to ZERO what interest rate was the
money earning while on deposit?
100,000 = 10,000(P/A,i,18)+1000(P/G,i,18)
Using trial and error i = ?%
i 13 % P=100000
0 1 2 3 4 year
$10000
$11000
$12000
$13000
Chapter 3
Q: what is the nominal and the effective interest rates per year
for an interest rate of 0.015% per day.
a. Nominal i/year = 0.00015 (365)
= 0.05475
= 5.48%
b. Effective i= (1+i)n –1
i= (1+0.00015)365-1
i= 5.63%
Chapter 3
• Q: what quarterly interest rate is equivalent to an effective
annual rate of 6% per year compounded quarterly?
• i effective = (1+(r/m)m) –1
0.06 = (1+(r/4)4) –1
(1+ 0.06 )1/4= 1+(r/4)
R = 0.0587 per year
R = 1.468 % per quarter
Chapter 3
Q: What is the difference in the present worth of $50,000 eight
years from now if the interest rate is 13% per year
compounded semiannually or continuously?
• Semiannually i = 13%
P = 50,000 (P/F, 6.5%,16)
1 2 year
= 50,000 (0.3651) = 18,255 P=? F=50000
• Continuously
i = er-1 i = e0.13-1= 13.88% per year
P = 50,000 (P/F,13.88%,16)
= 50,000 (0.3535) = 17,675
• Difference
18,255 – 17,675 = $580
Chapter 3
Q: A jeans washing company is buying an ozone system for
the washing machines and for the treatment of its dye
wastewater. The initial cost of the ozone system is
$750,000.how much money must the company save each
quarter (in chemical costs) in order to justify the
investment if the system will last 5 years and the interest
rate is (a) 16% per year compounded quarterly . (b) 12%
per year compounded monthly.
i = 6% year
0 1 A=? 5
Chapter 4
Q:what is the present worth of the following series of income
and disbursement if the interest rate is a nominal 8% per
year compounded semi annually?
year Income,$ Expense,$
I/yr = (1+0.04)2-1 = 8.16%
P = -9000+4000(P/A,8.16%,5) -
-
+3000(P/A,8.16%,9) (P/F,8.16%,5) -
15000(0.3796) = $33,950
A= 33950(A/P,10.25%,10)= 33950(0.1645) = $5,585
1 3 i = 10% 9 10 year
0 $3500 $5000
$15000
Chapter 4
Q: find the value of G in the diagram below that would make
the income stream equivalent to the disbursements stream,
using an interest rate of 12% per year.
1 $600 8 9 12 year
0
i = 12%
G 2G
3G 4G
Chapter 4
Q: for the diagram shown below, calculate the amount of
money in year 15 that would be equivalent to the amounts
shown, if the interest rate is 1% per month.
i/yr = (1+0.01)12-1= 12.68%
Getting P-1 then getting F15
P-1= 500 (P/A,12.68%,9) -20 (P/G,12.68%,9)
= 500(5.1933)-20(16.7183)
year
= $2,262.28 0 1 2 3 4 5 6 7 8
F15= 2,262.28(F/A,12.68%,16)
$340
= 2,262.28(6.7538) 360
380
= $15,279 400
420
440
460
480
500
Chapter 5
Q: compare the alternatives below on the basis of their
present worth using an interest rate of 14% per year Alternatives
compounded monthly. Initial Cost ,$
X
, ,
Y
PWx = -40000-5000(P/A,1.17%,60)+10000(P/F,1.17%,60)
= -40000-5000(42.9787)+10000(0.4976) = - $249,920
PWy = -60000-13000(P/A,7.2%,10)+8000(P/F,7.2%,10)
= -60000-13000(6.9591)+8000(0.4989) = -$146,480
$10,000 Alternative Y $8,000
Alternative X
month month
$40,000 $60,000
Best Alternative
Chapter 5
Q: Compare the following machines on the basis of their
present worth. Use i= 12% per year
Alternatives
New Machine Used Machine
PWnew= -44000-7210(P/A,12%,14)- Initial Cost ,$
Annual Operating Cost,$ ,
,
,
,
23000(P/F,12%,7)-1900[(P/F,12%,2)
+(P/F,12%,4)+(P/F,12%,6)+(P/F,12%, New Machine $4,000
Year
9)+(P/F,12%,11)+(P/F,12%,13)]
0 1 $7,210 14
+3000(P/F,12%,7)+3000(P/F,12%,14)
$44,000 5 10
= -$98,758 $2,500 $2,500
Used Machine $3,000
$3,000
Year
0 1 $9,350 7
$23,000 2 4 6 $9,350 14
$1,900 $1,900 $1,900 9 11 13
$23,000 $1,900 $1,900 $1,900 Best Alternative
Chapter 5
Q: Compare the following machines on the basis of their
Alternatives
present worth. Use i= 16% per year R R
Initial Cost ,$ , ,
PWR1= -147,000-11000(P/A,16%,6)- , in year , in year
: increasing : increasing
500(P/G,16%,6)+5000(P/F,16%,6) Annual Cost,$
by $ per by $ , per
year year
= $189,300 Salvage Value, $ , ,
Life, years
PWR2= -56000-30000(P/A,16%,3)-
1000(P/G,16%,3)-54000(P/F,16%,3)- $2,000
[30000(P/A,16%,3)+1000(P/G,16%,3)] 0 1 2 3 year
*(P/F,16%,3)+2000(P/F,16%,6) 30,000 R2
$2,000
= -$203,644 $56,000 31,000
32,000
4 5 6
year
$5,000
R1 30,000
$147,000 G= $500
$11,500 $13,50
Best Alternative
0
Chapter 5
Q: Calculate the capitalized cost of $60,000 in year 0 and uniform
beginning-of-year rent payments of $25,000 for an infinite time
using an interest rate of (a) 12% per year (b) 16% per year
compounded monthly.
a. PW = - (60,000 + 25,000) - 25000/0.12
PW = -$293,333
b. i/yr = (1+0.16/12)12-1= 17.227%
PW = -85,000-25,000/0.17227
PW = -$230,121
Chapter 5
Q: Compare the following machines on the basis of their
capitalized cost . Use i= 11% per year compounded
semiannually. Alternatives
MAX MIN
i/yr = (1+0.055)2-1= 11.3% Initial Cost ,$
Annual Operating Cost,$ ,
,
,
,
0 1 $50,000 5 0 1 $10,000
$150,000 $900,000
Best Alternative
Chapter 6
Q: Find the annual worth amount (per month) of a truck which
had a first cost of $38,000 an operating cost of $2000 per
month and a salvage value of 11,000 after 4 years at an
interest rate of 9% per year compounded monthly.
$11,000
Year
0 1 $2,000 4
$38,000
Chapter 6
Q: Compare the following machines on the basis of their
annual worth . Using i= 12% per year Alternatives
Machine G Machine H
Initial Cost ,$ , ,
Annual Operating Cost,$ , ,
AWG = -62000 (A/P,12%,4)- Salvage Value, $ , ,
Life, years
15000+8000(A/F,12%,4)
= -$33,738
AWH = -77000 (A/P,12%,6)-21000+
10000(A/F,12%,6)
0 1 $15,000 4 0 1 $21,000 6
$62,000 $77,000
Best Alternative
Chapter 6
Q: Compare the following machines on the basis of their
annual worth at i= 10% per year Alternatives
Machine P Machine Q
Initial Cost ,$ 30,000 42,000
Annual Operating
15,000 6,000
Cost year 1-4,$
AWP = -30000(A/P,10%,10)-15000+ Annual Cost
500 0
[500(P/G,10%,6)(P/F,10%,4) decrease year 5-n,$
Salvage Value, $ 7,000 11,000
(A/P,10%,10)]+7000(A/F,10%,10) Life, years 10 12
= -$19,981
AWQ = -42000(A/P,10%,12)-6000+
11000(A/F,10%,12)
= -$11,650
$7,000 $11,000
Machine P Machine Q
Year Year
0 1 4 10 0 1 $6,000 12
$50,000
$30,000 $42,000
Best Alternative
Chapter 6
Q: What is the perpetual annual worth of $50,000 now and
another $50,000 three years from now at an interest rate of
10% per year.
AW = [50000+50000(P/F,10%,3)]*0.1
= [50000+50000(0.7513)]*0.1
= -$8,756.5
Chapter 6
Q: Compare the following machines on the basis of their
annual worth . Using i= 8% per year (the index k varies
from 1-10) G
Alternatives
H
Initial Cost ,$ , ,
AWG = -40000(A/P,8%,10)- Annual Operating Cost,$ , - (k - ) ,
5100+100(A/G,8%,10)+ Salvage Value, $ , ,
Life, years Infinity
8000(A/F,8%,10)
= -$10,121
AWH = -300000(0.08)-1000
= -$25,000
G $8,000 H $50,000
10 Year
1 Year
$4,200 0 1 $1,000
G=-$100 $300,000
$5,100