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Ica T7

The document discusses financial calculations related to cash flows, including the equivalent single sum of money for given cash flows at a 10% interest rate and a comparison between purchasing and renting equipment. It provides formulas for calculating net values and the conditions under which purchasing becomes more economical than renting. Additionally, it includes a formula for calculating economic criteria using interest factors without performing calculations.

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mohamed.hassan031
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32 views3 pages

Ica T7

The document discusses financial calculations related to cash flows, including the equivalent single sum of money for given cash flows at a 10% interest rate and a comparison between purchasing and renting equipment. It provides formulas for calculating net values and the conditions under which purchasing becomes more economical than renting. Additionally, it includes a formula for calculating economic criteria using interest factors without performing calculations.

Uploaded by

mohamed.hassan031
Copyright
© © All Rights Reserved
We take content rights seriously. If you suspect this is your content, claim it here.
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Download as PDF, TXT or read online on Scribd
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P 2]

What single sum of money at the end of year 4 is equivalent to the cash flow profile shown
below? Use a 10% interest rate in your analysis.

Outflow:
Outflow = 250(1.1)! + 200(1.1)" + 150(1.1)# + 100(1.1)$

Inflow:
Inflow = 100(1.1)%# + 100(1.1)%" + 100(1.1)%!

Net Value:
Net Value = Inflow − Outflow = −591.065 "net flow"

P 4] ii
A construction company can purchase a piece of equipment for EGP 50,000 and
spend EGP 100 per day on maintenance. It will have a 5-year life with no salvage
value. The company can also rent similar equipment for EGP 400 per day. If the
interest rate is 15%, how many days of use would make the purchase option
more economical than the rental?
Given Data:
• P (purchase price) = EGP 50,000

• Maintenance cost = EGP 100/day

• Rental cost = EGP 400/day

• Life of equipment = 5 years

• Interest rate (i) = 15% annually

• Find number of days (x) where both options cost the same.

1. Convert Purchase Price to annual equivalent:


&
𝐚𝐧𝐧𝐮𝐚𝐥 𝐞𝐪𝐮𝐢𝐯𝐚𝐥𝐞𝐧𝐭 (𝐀/𝐏) = 𝑃 ⋅ =' , 15%, 5@

(𝐴/𝑃, 15%, 5) = 0.2983

So:

Annual Equivalent = 50,000 ⋅ 0.2983 = 14,915 EGP/year


2. Renting Cost = 400 EGP/day

So, we want to find the number of days x where both options cost the same:
Total cost if you buy = Total cost if you rent
That is:

14,915 + 100𝑥 = 400𝑥

This becomes:
14,915
14,915 + 100𝑥 = 400𝑥 ⇒ 𝑥 = = 49.72 ≈ 50 days
300

Thus, Answer: Choice (c).


P 5] b
For each of the following cash flow diagrams, write a formula using maximum of 5 interest
factors to show how the required economic criterion can be calculated. [DO NOT
CALCULATE]

𝐴𝑊 = [10(𝑃|𝐴, 𝑖, 3) × (𝑃|𝐹, 𝑖, 5) + 15(𝑃|𝐴, 𝑖, 2) × (𝑃|𝐹, 𝑖, 5)] × (𝐴|𝑃, 𝑖, 7)

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