***Cash Flow Diagrams must be drawn for each problem*** Round all answers to the nearest dollar. 1. Your company is currently evaluating the purchase of a new scraper and you have been tasked with creating a cash flow diagram to assist in the analysis. The purchase price of the scraper is $850,000 and it is anticipated to be used for 10 years. The maintenance cost is anticipated to be $10,000 per year for the first 5 years and $25,000 for years 6 to 10. (Remember, you will pay the maintenance cost the final year so that you can sell it to another party and obtain the salvage value.) The salvage value is anticipated to be $125,000. The annual income is anticipated to be $250,000 per year for the first half of its life and $225,000 per year for the second half of its life. (2.5 points) a. Draw the cash flow diagram of the costs/income that will be associated with this scraper. 2. To purchase a used front end loader your firm seeks to borrow $135,000 from a bank The bank offers a seven year loan at an interest rate of 4.0% compounded annually. If your firm chooses to make one payment at the end of the loan period, repaying all principal and interest at that time (2 points): a. Which equation should be used to solve the problem (number)? b. What total amount of money will be paid to the bank at the end of the load period? c. How many dollars of the total amount represent interest? (How much did it cost you to borrow the money?) 3. Interest rates in the 1970's exceeded 16%. Redo problem #2 using and interest rate of 17.0%. (2 points) 4. Your company plans to purchase a $750,000 hydraulic crane six years from now. Your bank currently offers a savings account that pays interest at a rate of 3.75% annually if you invest your money with them. You have been tasked with determining how much money you should invest now to buy the crane in the future. (2 points) a. Which equation should be used to solve the problem (number)? b. What total amount of money must be invested today at the offered interest rate to have $650,000 available six years in the future? c. How many dollars of the total $750,000 is gained by the income from interest over the six years? (How much with the bank pay you to use your money?) 5. Your company plans to purchase a new front loader for $350,000 and use it for eight years. The company will pay for the equipment outright. After eight years, its estimated salvage value will be $50,000. The annual interest rate is 5.0%. Your estimating department is interested in determining what the loader will cost the company each year so that they can apply the proper costs to projects they are bidding in the future. (2 points) a. Which equation should be used to solve the problem (number)? b. What is the annual cost of acquiring the front loader? c. What is the annual return based on selling the loader after its useful life? d. What is the contractor's annual cost of owning the loader? 6. Your firm is saving to replace equipment at a future date. Each year $65,000 is being placed in a bank account which pays 3.5% interest. Assume the money will be withdrawn and equipment replaced after five years of annual investments. What is your total amount of money available for replacement? (2 points) a. Which equation should be used to solve the problem (number)? b. What is the total amount of money available for equipment replacement after five years? c. How many dollars of that total amount represents the interest cost? 7. A new grader has a new purchase price of $450,000, an estimated life of ten years and an estimated salvage value of $75,000. Annual maintenance is expected to cost $8,500 per year for the life of the equipment. The annual interest rate is 5.5%. (3 points) a. What is the present value of the salvage value? b. What is the present value of the annual maintenance? c. What is the present value of the purchase price? d. What is the present value of owning and operating the grader for the next ten years? 8. Your firm is considering two options to replace an aging compactor. Option #1 - Purchase a new compactor for $30,000. The new compactor is expected to last six years and have a salvage value of $4,000. Option #2 - Purchase a used compactor for $15,800. The used compactor is expected to last three years with no salvage value. (You assume that you would be able to purchase another used compacted at the beginning of year 3 that would have an anticipated lifespan of 3 years and would cost $18,500 with no salvage value. Hint: option 2 requires analyzing two pieces of equipment.) If the annual interest rate is 5%: a. What is the present worth cost of option #1? (2 points) b. What is the present worth cost of option #2? (2 points) c. Which alternative should be selected? (0.5 points)