$5.$ Consider the following cash flows for two types of models:

Both models will have no salvage value upon their disposal $($at the end of their

respective service lives$).$ The firm's $$ is known to be $15\%.$

a$)$ Notice that both models have different service lives. However, Model A will be

available in the future with the same cash flows. Model B is available now only. If

you select Model B now, you will have to replace it with Model A at the end of year $2.$

If your firm uses the present worth as a decision criterion, which model should be

selected, assuming that your firm will need one of the two models for an indefinite

period?

b$)$ Suppose that your firm will need either model for only two years. Determine the

salvage value of Model A at the end of year $2$ that makes both models indifferent

$($equally likely$).$

$6.$ Consider an investment project with the following repeating cash flow pattern every

four years forever.

What is the annual equivalence amount of this project at an interest rate of $14\%?$

$7.$ You invest in a piece of equipment costing $$40,000.$ The equipment will be used for two

years, and it will be worth $$15,000$ at the end of two years. The machine will be used for

$4,000$ hours during the first year and $6,000$ hours during the second year. The expected

savings associated with the use of the piece of equipment will be $$28,000$ during the

first year and $$40,000$ during the second year. Your interest rate is $10\%.$

a$)$ What is the capital recovery cost?

b$)$ What is the annual equivalent worth?

c$)$ What is net savings generated per machine$-$hour?

$8.$ A machine tool company is considering a new investment in a punch press machine

that will cost $$100,000$ and has an annual maintenance cost of $$10,000.$ There is also

an additional overhauling cost of $$20,000$ for the equipment once every four years.

Assuming that this equipment will last $12$ years under these conditions, what is the

cost of owning and maintaining the punch press at an interest rate of $10\%?9.$ J&M Company is a real$-$estate developer considering a $40-$unit apartment complex in a

growing college town. As the area is also booming with foreign automakers locating

their U$.$S$.$ assembly plants, the firm expects that the apartment complex, once built,

will enjoy a $90\%$ occupancy for an extended period. The firm already compiled some of

the critical financial information related to the development project as follows:

$$ Land price $(1$ acre$)=$ $$1,200,000$

$$ Building $(40$ units of single bedroom$)=$ $$4,800,000$

$$ Project life$=25$ years

$$ Building maintenance per unit per year$=($$$10012)$

$$ Annual property taxes and insurance$=$ $$400,000$

Assuming that the land will appreciate at an annual rate of $5\%,$ but the building will

have no value at the end of $25$ years$($it will be torn down and a new structure would be

built$),$ determine the minimum monthly rent that should be charged if a $12\%$ return $($or

$0\mathrm{.}9489$ per month$)$ before tax is desired.

$10.$ Peabody transport service is considering the purchase of a helicopter for connecting

service between its base airport and the new inter county airport being built about $30$

miles away. It is believed that the helicopter will be needed only for six years until the

rapid transit connection is phased in$.$ The estimates on two type of helicopters under

consideration, Model A and Model B$,$ are given:

Assuming that the model A will be available in the future, with identical costs, what is

the annual cost advantage of selecting the model B$?($use an in