Solution 2
Year 0 1 2 3 4
Cost of truck -400000
Annual savings 90000 92700 95481 98345
Salvage value 100000
Total cash flows -400000 90000 92700 95481 198345
PVF @ 7% 1 0.934579 0.873439 0.816298 0.762895
Present Value -400000 84112.15 80967.77 77940.94 151316.8
Net Present Value -5662.364
The city should not buy the truck as it is having negative NPV.
Solution 3
Lender 1
Year 0 1 2 3 4
Cost of truck -400000
Annual savings 90000 93600 97344 101237.8
Salvage value 100000
Total cash flows -400000 90000 93600 97344 201238
PVF @ 7.5% 1 0.930233 0.865333 0.804961 0.748801
Present Value -400000 83720.93 80995.13 78358.08 150686.9
Net Present Value -6238.914
Lender 2
Year 0 1 2 3 4
Cost of truck -400000
Annual savings 90000 90900 91809 92727.09
Salvage value 100000
Total cash flows -400000 90000 90900 91809 192727
PVF @ 6.5% 1 0.938967 0.881659 0.827849 0.777323
Present Value -400000 84507.04 80142.83 76004 149811.2
Net Present Value -9534.914
Option c is correct.
Solution 2
Particlars Option 1 ($) Option 2 ($)
Energy cost 20000 10000
Maintenance cost 2000 10000
Total cost 22000 20000
PVIFA (4%, 20) 13.59 13.59
Present Value 298980 271800
Add: cost of system 50000 100000
Total cost 348980 371800
Option 1 is better due to lower cost as compared to option 2.
Solution 2
Cost of truck 120000
Residual value 20000
Life of truck 20
Straight line depreciation (Cost-residual value)/ Life of truck
Straight line depreciation 5000
Solution 4
Particulars Amount ($)
Cost of equipment 500000
Transportation and installation c 50000
Value of capital asset 550000
Solution 2
Cost of bond 100000000
Design cost 10000000
Insurance cost 1100000
Total cost / Principal Value 111100000
Interest rate 5.875%
Year 20
Year Principal outstanding Interest Principal repaid
1 111,100,000 3,263,563
2 111,100,000 3,263,563 3,061,020
3 108,038,980 3,173,645
4 108,038,980 3,173,645 3,240,855
5 104,798,125 3,078,445
6 104,798,125 3,078,445 3,431,255
7 101,366,870 2,977,652
8 101,366,870 2,977,652 3,632,841
9 97,734,029 2,870,937
10 97,734,029 2,870,937 3,846,271
11 93,887,758 2,757,953
12 93,887,758 2,757,953 4,072,239
13 89,815,518 2,638,331
14 89,815,518 2,638,331 4,311,483
15 85,504,035 2,511,681
16 85,504,035 2,511,681 4,564,783
17 80,939,252 2,377,591
18 80,939,252 2,377,591 4,832,964
19 76,106,288 2,235,622
20 76,106,288 2,235,622 5,116,901
21 70,989,388 2,085,313
22 70,989,388 2,085,313 5,417,518
23 65,571,869 1,926,174
24 65,571,869 1,926,174 5,735,798
25 59,836,072 1,757,685
26 59,836,072 1,757,685 6,072,776
27 53,763,296 1,579,297
28 53,763,296 1,579,297 6,429,551
29 47,333,744 1,390,429
30 47,333,744 1,390,429 6,807,288
31 40,526,457 1,190,465
32 40,526,457 1,190,465 7,207,216
33 33,319,241 978,753
34 33,319,241 978,753 7,630,640
35 25,688,602 754,603
36 25,688,602 754,603 8,078,940
37 17,609,662 517,284
38 17,609,662 517,284 8,553,577
39 9,056,085 266,022
40 9,056,085 266,022 9,056,085
Total debt service
3,263,563
6,324,583
3,173,645
6,414,500
3,078,445
6,509,700
2,977,652
6,610,493
2,870,937
6,717,208
2,757,953
6,830,192
2,638,331
6,949,814
2,511,681
7,076,464
2,377,591
7,210,554
2,235,622
7,352,523
2,085,313
7,502,832
1,926,174
7,661,971
1,757,685
7,830,460
1,579,297
8,008,848
1,390,429
8,197,716
1,190,465
8,397,680
978,753
8,609,392
754,603
8,833,542
517,284
9,070,861
266,022
9,322,108
