Question

Future Value and Present Worth (DRAW the Cash Flow Diagram)

a) MARTA is buying a new ticketing system. The price the vendor and MARTA has agreed to is $200,000. The city will also pay 8% interest compounded annually for the ability to not make any payment on the system until the 5 year warranty period is up. So, the agency is going to install the new system in December 2018 but they do not have to pay the vendor until December 2023. What will they be required to pay the vendor in December 2023?

b) Engineers at a water supply plant, using asset management tools, have identified that the aeration unit will need to be replaced in 7 years at a cost of $50,000 in that year. How much should the plant put aside now to have the money to replace the aeration unit in 7 years? Assume a 10% interest rate compounded annually.

c) A major transportation project is going to be built in phases. Phase I is scheduled to be competed in 3 years and the cost at year 3 is $125,000. Phase II is scheduled to be complete in year 7 at a cost of $210,000 and the final Phase will be complete in year 15 at a cost of $300,000. Using a 6% compounded discount rate, what is the capitalization (sum of the equivalent present values) of the transportation project?

2. Future Value and Present Worth (DRAW the Cash Flow Diagram) a) MARTA is buying a new ticketing system. The price the vendor and MARTA has agreed to is $200,000. The city will also pay 8% interest compounded annually for the ability to not make any payment on the system until the 5 year warranty period is up. So, the agency is going to install the new system in December 2018 but they do not have to pay the vendor until December 2023. What will they be required to pay the vendor in December 2023? b) Engineers at a water supply plant, using asset management tools, have identified that the aeration unit will need to be replaced in 7 years at a cost of $50,000 in that year. How much should the plant put aside now to have the money to replace the aeration unit in 7 years? Assume a 10% interest rate compounded annually. c) A major transportation project is going to be built in phases. Phase I is scheduled to be competed in 3 years and the cost at year 3 is $125,000. Phase II is scheduled to be complete in year 7 at a cost of $210,000 and the final Phase will be complete in year 15 at a cost of $300,000. Using a 6% compounded discount rate, what is the capitalization (sum of the equivalent present values) of the transportation project?

Answer 1