CIVL 2812—Project Appraisal (Semester 2, 2019)
CIVL 2812—Project Appraisal (Semester 2, 2021)
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Tutorial 6 – Answers
ESSENTIAL QUESTIONS
Solution 7-18
Taxable Income = gross income – all expenses (excluding capital investments) – depreciation deductions
Taxable income = $800,000 – $500,000 – $70,000
= $230,000
Federal taxes owed (from Table 7-5) = $22,250 + 0.39[$230,000-100,000]
Solution 7-26
a)
The IRR is found as follows: 0 = −$280,000 + $64,000(P/A, i′, 7).
Solving yields i′ = 13.4% (solve by trial and error followed by linear interpolation)
As after tax IRR is greater than 10%, the robot should be acquired.
b)
P.W of after tax cash flow at 10% = $40,286
By trial and error, solving for IRR, I’% = 14.62%
Solution 8-4
F.W of their 30 year investment plan
F.W =$32,000( F/A;7%;30) = $3,022,746
Purchasing power in today’s dollar
P = $3,022,746(P/F;2%;30) = $1,668,858
They will meet their saving expectations.
CIVL 2812—Project Appraisal (Semester 2, 2021)
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ESSENTIAL QUESTIONS
Solution 8-9
Solution 8-27
Given, C.I = $950,000; O&M (R$) =$92,600; ir =10.05% per year; f (inflation) = 4.5% per year;
f’ = 5.7% per year
Then, M.V7 (A$) =$95,000; O&M (A$) = 92,000(1+ 0.057)1 = $97,878
im = 0.1005+0.045+(0.1005*0.045) = 0.15 = 15% per year
Let the annual uniform revenue in actual dollars be R. Then at break even; P.W(im) = 0
𝑃. 𝑊(15%) = −950,000 − 97,878 [
1−(
𝑝
𝑓
;15%;7)(
𝑓
𝑝
;5.7%;7)
15%−5.7%
] + 𝑅 (
𝑃
𝐴
; 15%; 7) + 95,000(
𝑝
𝑓
; 15,7)
𝑃. 𝑊(15%) = −950,000 − 97,878 [
1−0.3759∗1.474
0.093
] + 𝑅(4.1604) + 95,000(0.3759)
𝑹 = 𝟑𝟑𝟐, 𝟓𝟔𝟒. 𝟕
EXTENSION QUESTIONS
Solution 7-22
Given:
Capital investment = $135,000 + $25,000 = $160,000
Salvage value for depreciation (S.V) = $10,000
Depreciation deduction for six years = ($160,000 – $10,000)/6 = $25,000
Market value after its useful life (M.V) = $30,000
a) After tax cash flow calculations:
b) After tax Present worth at MARR = 12%
P.W (12%) = -160,000+29,200(P/A, 12%, 6) – 720(P/G, 12%, 6) + 22000(P/F, 12%, 6)
= -160,000 + 29,200 (4.1114) – 720(8.930) + 22000(0.5066)
= -35,231.5
CIVL 2812—Project Appraisal (Semester 2, 2021)
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EXTENSION QUESTIONS
Solution 7-22 contd..
c) Before tax MARR = 12%/ (1-40%) = 20%
Let the increment in annual revenue be X
P.W before tax will then be:
P.W (20%) = -60,000 + X (P/A,20%,6))
60,000=X*3.3255
X = $18,042
An increment of around 45% in annual revenue can justify the investment (Before tax
Solution 7-44
Hence choose Freezer 1.
CIVL 2812—Project Appraisal (Semester 2, 2021)
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EXTENSION QUESTIONS
Solution 8-19
Solution 8-30
CIVL 2812—Project Appraisal (Semester 2, 2021)
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EXTENSION QUESTIONS
Solution 8-30 contd..