Economics Answers

Consider the following cash flow:

End of year Net cash flow (Rs,000)
0 -1100
1 -550
2 0
3 230
4 1000
5 520
6 320
7 450

Calculate the present worth and future worth and payback period, if MARR is 15% per year. Do this
project economically feasible?

Find internal rate of return for the project whose cash flows are as flows: 8
Initial investment = Rs.5,00,000
Annual benefit = Rs. 1,50,000
Annual cost = Rs.30,000
Salvage value = Rs. 40,000
MARR = 12% per year

A new electric saw for cutting small pieces of lumber in a furniture manufacturing plant has a cost
basis of Rs. 5,000 and 8 year depreciable life. The estimated salvage value of the saw is zero at the
end of 4 th year cumulative depreciation charge of 7 th year and book value of 6 th year using double
declining balance method.

a) Evaluate the following two feasible investments A and B having different useful life, if MARR is
15 % per year. Use PW method with repeatability assumptions. 8

Investment of A (Rs.) Investment of B (Rs.)

Investment 40,000 50,000
Net annual
revenue

15,000 20,000
Salvage value 5,000 6,000
Useful life 3 years 5 years

perform sensitivity analysis using PW Method over a range of (+ or -) 20% in
i. initial investment. ii. net annual revenue
iii. salvage value iv. useful life:

Initial investment (Rs) = 200,000
Annual revenue (Rs) =50,000
Annual expenses (Rs) =5,000
Salvage values (Rs) =25,000
Useful life =10 yrs
MARR =12% Per year
Draw also the sensitivity graph.

Evaluate the project having following cash flow with both types of B/C ratio using by PW method
8
Initial investment =Rs. 1,000,000
Salvage value =Rs. 150,000
Annual revenue =Rs. 190,000
Annual expenses =Rs. 50,000
MARR = 12% per year
Useful life of project = 12 Years

Express cash flow as uniform payment series for 10
years that is equivalent to a payment series of Rs. 50,000 at the end of first year, decreasing by Rs.
5,000 each year over 10 years at interest rate of 16% per year compounded annually.

Evaluate the following project with the help of ERR for external
reinvestment rate 20% per year and MARR 18% per year. 7
Initial investment =Rs. 4,000,000
Expected life =8 Years
Salvage value =Rs. 50,000
Annual expenses =Rs. 160,000
Annual revenue =Rs. 320,000

the increase in the price of peanut butter, a 40 percent increase, was much
smaller than the increase in the price of peanuts, an increase from $450 to $1,200 or a 167
percent increase. Can you explain why?

A computer systems engineer could paint his house, but it makes more sense
for him to hire a painter to do it. Explain why.