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  1. Find the present value, P, for the following cash flows.

i = 12%

 

  1. Star Inc. must purchase a small size milling machine. The following is known about the machine and about possible cash flows. The machine is expected to have a useful life of 8 years. The company has a MARR of 7%. Determine the NPW of the machine.
  p=.25 p=.50 p=.25
First cost $40,000 $40,000 $40,000
Annual savings 2,000 5,000 8,000
Annual costs 12,000 8,000 6,000
Actual salvage value 4,000 5,000 6,500

 

 

  1. The company accountant is uncertain which of three depreciation methods the firm should use for welding equipment that costs $150,000, and has a zero salvage value at the end of a 10-year depreciable life. Compute the depreciation schedule for the welding equipment using the methods listed:
    1. Straight line
    2. Double declining balance
    3. Sum-of-years’ –digits

Based on your analysis, which depreciation method is most profitable for the firm?

  1. A Petroleum company recently completed construction on a large refinery in Louisiana. The final construction cost was $71,000,000. The refinery covers a total of 260 acres. The Expansion and Acquisition Department at the company is currently working on plans for a new refinery in Texas. The anticipated size is approximately 360 acres. If the power-sizing exponent for this type of facility is .70, what is the estimated cost of construction?

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