1. If an amount invested five years ago doubled, what is the annual interest rate?
2. An alumnus donates $250,000 to the Mechanical Engineering Department to award $1000/year book scholarships to students for the next 10 years. If the department wants to award the same number of scholarships each year, what is the total number of scholarships that can be awarded? Assume an 8% interest rate, and draw the cashflow diagram.
3. If your grandparents invested $1000 for you on the day that you were born, at an interest rate of 10%, how much money will you have on your 21st birthday?
4. Consider a prospective investment in a project having a first cost of $300,000, operating and maintenance costs of $35,000 per year, and an estimated salvage value of $50,000 at the end of 30 years. Assume an interest rate of 8%. What is the present equivalent cost of the investment for the 30 year project? Draw a cashflow diagram.
5. A corporation evaluates all capital investments using 20% interest. The corporation must purchase a new tangent scanner. The following estimates pertain to the two models available:
1st cost $ 90,000 $170,000
Life 5 yrs 5 yrs
Salvage Value $ 15,000 $ 50,000
Annual Cost $ 44,000 $ 70,000
Annual Income $100,000 $160,000
Determine the present value of each model. Which would you recommend based on price? Draw the cashflow diagrams.
6. A carbon-steel reactor costs $15,000 and has an estimated life of four years in a corrosive
environment. A stainless-steel reactor costs $30,000 and has an estimated life of 10 years in the same corrosive environment. The salvage value of the carbon-steel reactor is $2000, and the salvage value of the stainless steel reactor is $6000. Using 10% interest which reactor should be purchased? Draw the cashflow diagrams.
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