1. Sandy, a manufacturing engineer, just received a year-end bonus of $10,000 that will be invested immediately.

With the
expectation of earning at the rate of 8% per year, Sandy hopes to take the entire amount out in exactly 20 years to pay for a family
vacation when the oldest daughter is due to graduate from college. Find the amount of funds that will be available in 20 years?
2. Houston American Cement factory will require an investment of $200 million to construct. Delays beyond the anticipated
implementation year of 2012 will require additional money to construct the factory. Assuming that the cost of money is 10% per
year, compound interest, determine the following for the board of directors of the Brazilian company that plans to develop the
plant.
(a) The equivalent investment needed if the plant is built in 2015.
(b) The equivalent investment needed had the plant been constructed in the year 2008
3. How much money should you be willing to pay now for a guaranteed $600 per year for 9 years starting next year, at a rate of
return of 16% per year?
4. Houston American Cement plant may generate a revenue base of $50 million per year. The president of the Brazilian parent
company Votorantim Cimentos may have reason to be quite pleased with this projection for the simple reason that over the 5-year
planning horizon, the expected revenue would total $250 million, which is $50 million more than the initial investment. With
money worth 10% per year, address the following question from the president: Will the initial investment be recovered over the 5-
year horizon with the time value of money considered? If so, by how much extra in present worth funds? If not, what is the
equivalent annual revenue base required for the recovery plus the 10% return on money?
5. The president of Ford Motor Company wants to know the equivalent future worth of a $1 million capital investment each year
for 8 years, starting 1 year from now. Ford capital earns at a rate of 14% per year.
6. Houston American Cement projected $200 million investment can generate $50 million per year in revenue for 5 years starting
1 year after start-up. A 10% per year time value of money has been used previously to determine P , F , and A values. Now the
president would like the answers to a couple of new questions about the estimated annual revenues. ( a ) What is the equivalent
future worth of the estimated revenues after 5 years at 10% per year? ( b ) Assume that, due to the economic downturn, the
president predicts that the corporation will earn only 4.5% per year on its money, not the previously anticipated 10% per year.
What is the required amount of the annual revenue series over the 5-year period to be economically equivalent to the amount
calculated in ( a )?
7. How much can Haydon Rheosystems, Inc., afford to spend now on an energy management system if the software will save the
company $21,300 per year for the next 5 years? Use an interest rate of 10% per year.
8. A manufacturer of off-road vehicles is considering the purchase of dual-axis inclinometers for installation in a new line of
tractors. The distributor of the inclinometers is temporarily overstocked and is offering them at a 40% discount from the regular
cost of $142. If the purchaser gets them now instead of 2 years from now, which is when they will be needed, what is the present
worth of the savings per unit? The company would pay the regular price, if purchased in 2 years. Assume the interest rate is 10%
per year.
9. The Moller Skycar M400 is a fl ying car known as a personal air vehicle (PAV) that is expected to be FAA-certifi ed by
December 31, 2011. The cost is $985,000, and a $100,000 deposit will hold one of the first 100 “cars.” Assume a buyer pays the
$885,000 balance 3 years after making the $100,000 deposit. At an interest rate of 10% per year, what is the effective total cost of
the PAV in year 3?
10. A family that won a $100,000 prize on America’s Funniest Home Videos decided to put one-half of the money in a college
fund for their child who was responsible for the prize. If the fund earned interest at 6% per year, how much was in the account 14
years after it was started?
11. One of the biggest vulnerabilities in a control system is network devices, such as Ethernet-based network switches that are
located in unsecured locations and accessible to everyone. DeltaX switches, manufactured by Dahne Security, allow the user to
automatically lock and unlock the port access to all switches in the network. The company is considering expanding its
manufacturing lines now or doing it in 3 years. If the cost now would be $1.9 million, what equivalent amount could the company
afford to spend in 3 years? The interest rate is 15% per year.
12. A company that sells high-purity laboratory chemicals is considering investing in new equipment that will reduce cardboard
costs by better matching the size of the products to be shipped to the size of the shipping container. If the new equipment will cost
$220,000 to purchase and install, how much must the company save each year for 3 years in order to justify the investment, if the
interest rate is 10% per year?
13. Red Valve Co. of Carnegie, Pennsylvania, makes a control pinch valve that provides accurate, repeatable control of abrasive
and corrosive slurries, outlasting gate, plug, ball, and even satellite coated valves. How much can the company afford to spend
now on new equipment in lieu of spending $75,000 four years from now? The company’s rate of return is 12% per year.
14. If GHD Plastics purchases a new building now for $1.3 million for its corporate headquarters, what must the building be worth
in 10 years? The company expects all expenditures to earn a rate of return of at least 18% per year.
15. CGK Rheosystems makes high-performance rotational viscometers capable of steady shear and yield stress testing in a
rugged, compact footprint. How much could the company afford to spend now on new equipment in lieu of spending $200,000
one year from now and $300,000 three years from now, if the company uses an interest rate of 15% per year?
16. Five years ago a consulting engineer purchased a building for company offi ces constructed of bricks that were not properly
fired. As a result, some of the bricks were deteriorated from their exposure to rain and snow. Because of the problem with the
bricks, the selling price of the building was 25% below the price of comparable, structurally sound buildings. The engineer
repaired the damaged bricks and arrested further deterioration by applying an extra-strength solvent-based RTV elastomeric
sealant. This resulted in restoring the building to its fair market value. If the depressed purchase price of the building was
$600,000 and the cost of getting it repaired was $25,000, what is the equivalent value of the “forced appreciation” today, if the
interest rate is 8% per year?

17. Metso Automation, which manufactures addressable quarter-turn electric actuators, is planning to set aside $100,000 now and
$150,000 one year from now for possible replacement of the heating and cooling systems in three of its larger manufacturing
plants. If the replacement won’t be needed for 4 years, how much will the company have in the account, if it earns interest at a rate
of 8% per year?

18. Syringe pumps often fail because reagents adhere to the ceramic piston and deteriorate the seal. Trident Chemical developed
an integrated polymer dynamic seal that provides a higher sealing force on the sealing lip, resulting in extended seal life. One of
Trident’s customers expects to reduce downtime by 30% as a result of the new seal design. If lost production would have cost the
company $110,000 per year for the next 4 years, how much could the company afford to spend now on the new seals, if it uses an
interest rate of 12% per year?

19. China spends an estimated $100,000 per year on cloud seeding efforts, which includes using antiaircraft guns and rocket
launchers to fi ll the sky with silver iodide. In the United States, utilities that run hydroelectric dams are among the most active
cloud seeders, because they believe it is a cost-effective way to increase limited water supplies by 10% or more. If the yields of
cash crops will increase by 4% each year for the next 3 years because of extra irrigation water captured behind dams during cloud
seeding, what is the maximum amount the farmers should spend now on the cloud seeding activity? The value of the cash crops
without the extra irrigation water would be $600,000 per year. Use an interest rate of 10% per year.

20. The Public Service Board (PSB) awarded two contracts worth a combined $1.07 million to improve (i.e., deepen) a retention
basin and reconstruct the spillway that was severely damaged in a flood 2 years ago. The PSB said that, because of the weak
economy, the bids came in $950,000 lower than engineers expected. If the projects are assumed to have a 20-year life, what is the
annual worth of the savings at an interest rate of 6% per year?

21. The National Highway Traffi c Safety Administration raised the average fuel effi ciency standard to 35.5 miles per gallon for
cars and light trucks by the year 2016. The rules will cost consumers an average of $434 extra per vehicle in the 2012 model year.
If a person purchases a new car in 2012 and keeps it for 5 years, how much must be saved in fuel costs each year to justify the
extra cost? Use an interest rate of 8% per year.

22. In an effort to reduce childhood obesity by reducing the consumption of sugared beverages, some states have imposed taxes on
soda and other soft drinks. A survey by Roland Sturm of 7300 fi fth-graders revealed that if taxes averaged 4 cents on each
dollar’s worth of soda, no real difference in overall consumption was noticed. However, if taxes were increased to 18 cents on the
dollar, Sturm calculated they would make a signifi cant difference. For a student who consumes 100 sodas per year, what is the
future worth of the extra cost from 4 cents to 18 cents per soda? Assume the student consumes sodas from grade 5 through
graduation in grade 12. Use an interest rate of 6% per year.

23. The Texas Tomorrow Fund (TTF) is a program started in 1996 in Texas wherein parents could prepay their child's college
tuition when the child was young. Actuaries set the price based on costs and investment earnings at that time. Later, the Texas
legislature allowed universities to set their own tuition rates; tuition costs jumped dramatically. The cost for entering a newborn in
1996 was $10,500. If the TTF fund grew at a rate of 4% per year, while tuition costs increased at 7% per year, determine the
state’s shortfall when a newborn enters college 18 years later.

24. Henry Mueller Supply Co. sells tamperproof, normally open thermostats (i.e., thermostat closes as temperature rises). Annual
cash fl ows are shown in the table below. Determine the future worth of the net cash fl ows at an interest rate of 10% per year

25. A company that makes self-clinching fasteners expects to purchase new production-line equipment in 3 years. If the new units
will cost $350,000, how much should the company set aside each year, if the account earns 10% per year?