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Required:

Mr. Art Deco will be paid $100,000 one year hence. This is a nominal flow, which he discounts at an 8% nominal discount rate:

PV = $100,000+ 1.08 = $92,593

The inflation rate is 4%. Calculate the PV of Mr. Deco's payment using the equivalent real cash flow and real discount rate.

Note: Round your answer to 2 decimal places.

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Open Excel in new tab/nHomework - Chapter 6 i

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Required:

Air conditioning for a college dormitory will cost $1.5 million to install and $200,000 per year to operate at current prices. The system

should last 25 years. The real cost of capital is 5%, and the college pays no taxes. What is the equivalent annual cost?

Note: Round your answer to 2 decimal places.

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X

Seved

I

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Save & Ex/nRequired:

3

In 2022, the California Air Resources Board (CARB) started planning its "Phase 3" requirements for reformulated gasoline (RFG). RFG is

gasoline blended to tight specifications designed to reduce pollution from motor vehicles. CARB consulted with refiners,

environmentalists, and other interested parties to design these specifications. As the outline for the Phase 3 requirements emerged,

refiners realized that substantial capital investments would be required to upgrade California refineries.

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Assume a refiner is contemplating an investment of $400 million to upgrade its California plant. The investment lasts for 25 years and

does not change raw material and operating costs. The real (inflation-adjusted) cost of capital is 7%.

How much extra revenue would be needed each year to recover that cost?

Note: Round your answer to 2 decimal places.

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M

mm

Open Excel in new tab/nRequired:

4

Machine B is expected to produce the given real cash flows. Machine C was purchased five years ago for $200,000 and produces an

annual real cash flow of $80,000. It has no salvage value but is expected to last another five years. The company can replace machine

C with machine B either now or at the end of five years. The real opportunity cost of capital is 10%. What is the NPV of machine B?

What is the EAC? When should the company replace machine C?

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A firm has a general-purpose machine, which has a book value of $319,000 and is worth $538,000 in the market. If the tax rate is 21 percent, what is the

opportunity cost of using the machine in a project?

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Multiple Choice

$219,000

$538,000

$319,000

$492,010/n6

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Given the following data for Project M calculate the NPV of the project.

Co Ci Cz

-$212 $145 $130

Cash flow in nominal terms:

Real discount rate= 5%

Nominal discount rate = 10%

Multiple Choice

$77.00

$32.14

$27.26

$35.34/nomework- Chapter 6

-oints

7

A project requires an investment of $902 today. It can generate sales of $1,104 per year forever. Costs are $602 for the first year and will increase by 20

percent per year. (Assume all sales and costs occur at year-end [l.e., costs are $602@t-13) The project can be terminated at any time without cost.

Ignore taxes and calculate the NPV of the project at a 12 percent discount rate.

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Multiple Choice

$102.20

$67.20

It cannot be calculated as g>r.

Saved

$59.71

Help Save & Exit

Su/n8

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Using the technique of equivalent annual cash flows and a discount rate of 7 percent, what is the value of the following project?

Year

CF

0 1 2 3 4

-34 20 21 22 16

Multiple Choice

$9.25

$9.80

O $16.44

$18.42

Heip

Save & Exit/nYou are considering the purchase of one of two machines required in your production process. Machine A has a life of two years. Machine A costs $62

initially and then $82 per year in maintenance. Machine B has an initial cost of $102. It requires $52 in maintenance for each year of its three-year life.

Either machine must be replaced at the end of its life. Which is the better machine for the firm? The discount rate is 15 percent and the tax rate is zero.

Multiple Cholce

Machine B, because EAC for machine B is $96.67

Machine A, because EAC for machine A is $120.14

Machine B, because PV of costs for machine B is $220.73

Machine A, because PV of costs for machine A is $195.31/n10

Your firm expects to receive a cash flow in two years of $16,758 in nominal terms. If the real rate of interest is 2 percent and the inflation rate is 5 percent,

what is the real cash flow for year 2?

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Multiple Choice

$15,188

$16,758

$17,178

$15,200