Give a correct title to each column, and under each column explain what it represents or what formula was used to calculate the numbers that you show. You may handwrite these notes onto the paper after printing, if you wish to do that, and add any extra explanations to help the grader follow your solution. Anytime you use MS Excel to solve problems you need to provide the spreadsheet file itself, not just a PDF file.

1. Your company must choose between two options: (a) Cessna Citation, which costs $4.5 million to purchase, $1.1 million per year of operation to fly and maintain, and has an expected useful life of 6 years, with a salvage value of $1.4 million, and (b) Dassault Falcon, which costs $5.2 million to purchase, $0.8 million per year of operation to fly and maintain, and has an expected useful life of 9 years, with a salvage value of $2.3 million. For an interest rate of 7% per year, use Present Worth Analysis to determine which alternative should be selected. Clearly identify any assumptions that you make in conducting this analysis.

2. If you buy a new Honda, you expect it will last 12 years before you want to replace it. If you buy a new Dodge, you anticipate 6 years of use until replacement. Or, if you purchase a used car, you would own it for 3 years before replacing it. The following table summarizes the applicable costs. Parameter Honda Dodge Used Car Purchase price $26,500 $22,000 $3,000 Annual fuel costs $800 $975 $1,350 Annual maintenance costs $130 $150 $900 Resale value at end of ownership period $9,800 $12,500 $0 For an interest rate of 4.5%, use Present Worth Analysis to compare these alternatives, and identify which option should be selected for a 12 year comparison period

3. An industrial paper shredder made by ShredCo has an expected useful life of 11 years, costs $8500 to buy, $175 per year in calibration and upkeep costs, and consumes $575 per year in electricity. Competitor DestructiMax sells a shredder with equal capacity for only $6300, but its useful life is 2 years less than the ShredCo unit. The DestructiMax shredder uses $700 per year in electricity, but has no annual calibration or maintenance required. To rent a shredder would cost $1350 per year. Compare the ShredCo and DestructiMax units using the Contract Services approach, for an interest rate of 6.5%.

4. If you purchase a batch of 25 Stihl saws for your maintenance crew, they can do contract tree removal work that yields $900,000 in new revenue per year. The Stihl saw costs $1100 each to purchase, and that flat purchase price includes the annual maintenance and an extended warranty to take the saw through 4 years of use. After 4 years of use the saws will be scrapped with an expected salvage value of $150 each. 25 Husqvarna saws will only enable your crew to earn $770,000 per year in new revenue, but they cost less: $550 each, which includes the annual maintenance and a standard warranty of 2 years use. To rent a Husqvarna saw costs $330 each per year (and yields the same revenue as when the saw is purchased). Use the Contract Services approach, and i = 8% to compare these two alternatives.

5. If you buy an IBM server for $85,000 then you can safely plan on being able to use it for 5 years before it needs to be replaced. However, IBM is willing to buy back their server at the end of any year: they will pay $68,000 at the end of the first year, $51,000 at the end of the second year, $30,000 at the end of the third year, $20,000 at the end of the fourth year, and $10,000 at the end of the fifth year. A server from Dell, by contrast, costs $60,000 to purchase, and will only be expected to be usable for 3 years before it needs replacement, with no salvage value. Both servers have the same specifications and capabilities, aside from the number of years of their useful life. Use the Early Termination approach to compare the two alternatives, and identify which has the lowest Present Value, for an interest rate of 11.5%.