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1. Derive the six compound interest equations. 2. The cost estimate of a project is $3.5 million. Annual costs for maintaining and operating the facility are forecast as $250,000 per year. After 8 years, it is anticipated the facility will be sold for $2.0 million. If the owner requires a 15% return on the investment, what net annual income must be received to recover the capital investment of the project? 3. What is the rate of return on an investment of $10,000 if the company expects to receive $2,000 each year for the next ten years? 4. Your company is considering the option of building or leasing a new office facility. The are two options are: A, involves constructing an office complex with other space for rent, and B, involves constructing an office to house only your operations. Income and expenses summarized for each of the options: A B Initial Cost 1,000,000 500,000 Annual Maintenance 50,000 30,000 Income 10,000 Salvage Value 100,000 30,000 Life of Facility MARR 10 years 10 years 18% 18% By comparing present worth, which of these two options is more desirable? 5. The Port Authorities of New York and New Jersey estimate that the annual net revenues for the George Washington Bridge (GWB) will total $13M by the end of this year (t=1). At the end of three years (t=4) you expect a toll increase of 10%. Revenues will then remain constant for the next 6 years (year 4 through 10). Because the GWB is such an important artery for the New York City area, the Port Authorities would like to reinvest this revenue in a comprehensive maintenance and repair program. However, it will take two years (t=3) before plans and specifications can be developed and contracts awarded. What is the annual amount the Port Authorities should expect to spend for a five-year contract (uniform cash flows starting at the end of years 3 through 8)? The Port Authorities use a MARR of 7% for all public works projects. 6. You buy a condo for $250,000. You put 20% down. Take a mortgage for $200,000 at 5.0% fixed for 30 years. a. What are your monthly payments? b. After five years, what is the balance due on the Mortgage? c. You are thinking it over. You can rent an apartment for $1,500 per month. Based on your mortgage monthly payment, your property taxes at 3% the value of the condo and Income tax savings of 41% of your monthly payment, compare the annual cash flows for renting or buying.

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