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for using any Excel macros involving present worth, annual worth, err, irr, etc. You can
use macros like a random number generator, solver, normal table, etc. To simplify
1. You own an old wave runner (small boat for one or two people). If the wave
runner is in working order, then you can sell it for \$2,000 with very little effort.
Last month the steering chassis broke and it cost \$1,000 to fix. Last weekend you
were out on a lake and had to paddle the wave runner back to shore. You blew
the motor and it will cost \$1,500 to replace the motor. Should you get the wave
runner fixed and why?
2. Using formulas and the tables in the book, determine the present worth, annual
worth and future worth of the following investment strategy. Invest \$1,500
dollars today and invest \$50 for every month for the next 5 years. Assume that
the annual nominal interest is 6%, which is compounded monthly. Please write
down all relative formulas. Use the table values, do not use Excel. However, put
the answer in an Excel sheet. Only use the table values uploaded to the course.
(i.e. Present worth = 300*(P/A,.02,4) + 1000 (P/F,.02,4) +10000)
3.
You get a starting job offer with a company. The salary is \$60,000. The
company offers one of two options. A fixed \$2,000 raise each year or a 2.5%
raise a year. How many years do you have to stay with the company to make the
2.5% increase better than the consistent \$2,000 raise. You consider your interest
rate to be inflation at 2%.
4. Consider the following problem. A company (that is highly successful and annual
profit is between 3 million and 5 million) is considering purchasing two
machines. Below are the costs regarding these two machines.
Machine
Cost of Machine
Shipping/installation costs
Annual Receipts
Annual Disbursement
Life of the machine
Salvage Value at end
of life
MARR 10%
A
\$90,000
\$10,000
\$60,000
\$20,000
3 years
B
\$130,000
\$10,000
\$90,000
\$35,000
4 years
\$0
\$10,000
a. What are the present worths of both machines using formulas and tables. Do not
combine cash flows?
b. What is the best choice based upon PW using Excel?
c. What is the best choice based upon FW in Excel?
d. What is the best choice based upon AW in Excel?
f.
5. A. Done in excel. In January 2018, I refinanced my home for \$279,000 in a 5
year arm at 3.125. Surprisingly, I was able to convince the bank to give me a 25
year loan. Currently, I owe \$235,000. I am debating about refinancing. The fees
and everything will cost me \$5,000. I can refinance to a 15 year loan at 2.5%.
How long do I have to stay in this house to make the refinance financially
beneficial assuming that the ARM stays at 3.125% for the life of the loan?
5 b. Answer the above question, if you assume that inflation is 2% per year.

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