Discussion Questions:

Suggested Answers
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5.16 In $ million units,

PWLand = -215 22(P/A,15%,50) 30(P/F,15%,25)
= -215 22(6.6605) 30(0.0304)
= $-362.443 ($-362,443,000)
PWSea = -350 2(P/A,15%,50) 70(P/F,15%,25)
= -350 2(6.6605) 70(0.0304)
= $-365.449 ($-365,449,000)
Select land route by a PW margin of only $3 million

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5.24 (a) PWLand = -130,000 95,000(P/A,10%,6)

105,000(P/F,10%,3) + 25,000(P/F,10%,6)
= -130,000 95,000(4.3553) 105,000(0.7513) +
25,000(0.5645)
= $-608,528
PWIncin = -900,000 60,000(P/A,10%,6) + 300,000(P/F,10%,6)
= -900,000 60,000(4.3553) + 300,000(0.5645)
= $-991,968
PWContract = 120,000(P/A,10%,6)
= 120,000(4.3553)
= $-522,636
Select private disposal contract

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(b) Recalculate PW for the contract alternative with 20%

increases each 2 years.
PWContract = -120,000(P/A,10%,2) - 120,000(1.20)(P/A,10%,2)
(P/F,10%,2)
- 120,000(1.2)2(P/A,10%,2)(P/F,10%,4)
= -120,000(1.7355) - 144,000(1.7355)(0.8264) 172,800(1.7355)(0.6830)
= $-619,615
Select land application; the selection changed

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6.10 (a) CR = -285,000(A/P,12%,10) + 50,000(A/F,12%,10)

= -285,000(0.17698) + 50,000(0.05698)
= $-47,590 per year
At revenue of $52,000 per year, yes, he did
(b) AW = -285,000(A/P,12%,10) + 50,000(A/F,12%,10) +
52,000 - 10,000 -1000(A/G,12%,10)
= -285,000(0.17698) + 50,000(0.05698) + 42,000 1000(3.5847)
= $- 9,175 per year
AW was negative

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6.28 (a) AWX = -90,000(A/P,10%,3) 40,000 +

7000(A/F,10%,3)
= -90,000(0.40211) 40,000 + 7000(0.30211)
= $-74,075
AWY = -400,000(A/P,10%,10) 20,000 + 25,000(A/F,10%,10)
= -400,000(0.16275) 20,000 + 25,000(0.06275)
= $-83,531
AWZ = -650,000(0.10) 13,000 - 80,000(A/F,10%,10)
= -650,000(0.10) 13,000 - 80,000(0.06275)
= $-83,020
Select Alternative X

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7.29 The net cash flow changes sign three times and Norstroms
criterion is no help, so there are
three possible i* values.

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7.31 (a) Year 0 1 2 3 4 5 6

NCF, $ -30 -2 -6 +21 +30 +18 +40
There is only one change in sign in the net cash flow; there is
only one i* value.
(b) 0 = -30 - 2(P/F,i,1) - 6(P/F,i,2) + 21(P/F,i,3) + 30(P/F,i,4) +
18(P/F,i,5) + 40(P/F,i,6)
Solve for i by trial and error or spreadsheet
i* = 28.3% (IRR function on spreadsheet)

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8.14 (a) -40,000 = PDiesel - (-150,000)

PDiesel = $-190,000
(b) 11,000 = M&ODiesel - (-41,000)
M&ODiesel = $-30,000
(c) 16,000 = SDiesel - (+23,000)
SDiesel = $39,000

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8.15 (a) -14,000 = -65,000 - PAnodize

PAnodize = $-51,000
(b) 5000 = PPC - (-21,000)
PPC = $-16,000
(c) 2000 = 6000 - SAnodize
SAnodize = $4000

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