Question

3. (a) A bridge needs a major refreshment every 12 years. Each refreshment costs 20 million The interest rate is 6 % that can be obtained on a fund set up at t-0. What is the amount that must be set aside at t 0 to obtain the required funding forever? 6 % find the best Present Worth of the following two investments. (b ) Using I B A Initial Investment Estimated Life 60,000 40,000 6 4 24,000 10,000 Salvage Value 25,000 15,000 Annual Income 6,000 8,000 Annual Expenses These are one-shot (once only) investments. You can get them on the same time scale by assuming investment B has net revenue of zero in years 5 and 6. You can make any other reasonable assumption about years 5 and 6 if you prefer.

Answer 1

= 73755 = 15000X 4.917 b) Prvestment A Initial Brw = 40000 Prof Annual Theane = 15000 XRMPUAF (64,6) PV of Annual Exp = 8000 xPUAR (626) - 8000 x 4.917 = 39336 PV of salvage value = 10000 XPUIF (6%,6) = 10000 x 1705 = 7050 pv of Cash Inflaus (73755+7050) = 80805 pr of Cash outflows a (4000 ot 39336) = 79336 NPV = ( 80805-79336) = 1469 Investment B Prof SV = 24000 x PriF (4,6%) = 24000 179 2 = 19008 PV of Annual Theane = 25000 x PVAF (48.6% = 25000 x 3.465 = 86625 Prof Anaual exp = 6aro PVAR (4,6%) = 6000 x 31465 = 20790 er of GI = (86625+ 19008) = 105633 pv of co= (20790 + 600w) - 80790 NPV = (105633-80790) = 24843