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1. A company wants to buy a machinery for $100,000. The company borrows one

fourth of this amount from a bank at 15% annual interest. The loan will be

repaid using equal annual payments over a 3-year period. The machinery will be

used for 5 years and then sold for $5,000. The machinery will generate annual

revenues of $30,000 each year over the five year ownership period. Find the

future worth of this investment at MARR of 18% per year. (-$6,420)

2. The following three investment options are available. The first cost of each

is $20,000. Based on the annual worth (AW) analysis, which option should be

picked for MARR=9% per year. Repeat using the future worth (FW) analysis.

End of Year Option #1 Option #2 Option #3

1 $8,000 $11,000 $9,500

2 $9,000 $10,000 $9,500

3 $10,000 $9,000 $9,500

4 $11,000 $8,000 $9,500

(FW $14,721.54 $15,704.73 $415,213.14)

3. Ashley has patented her senior design project. She is offering a potential

manufacturer two options for the exclusive rights to manufacture and market her

product. Plan A calls for a lump sum payment to her of $30,000. Plan B calls

for an annual payment of $1,000 plus a royalty of $0.50 per unit sold. The life

of the patent is 10 years. What will be the uniform annual sales volume of the

product for Ashley to be indifferent to the two plans based on future worth

analysis for a MARR of 10% per year? (7,765 units)

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