a. A pump has failed in a facility that will be completely replaced in 5 years. The new
pump costs $6,000 and the annual O&M costs will be $1,200 from EOY1 to EOY4. It
is anticipated that the pump will be sold for $1,500 at the end of the fifth year. Use
an interest rate of 12% to calculate the present worth of this new pump
investment. [3 points]
b. Allen bought a new automobile with a $5,000 up-front payment and a loan with 12%
annual interest, compounded monthly. The loan payments are $500 each month and
he should pay off the entire loan at the end of 60th months.
i. Calculate the present worth of this car. [2 points]
ii. Determine how much has been paid after the 40th payment. [2 points]
c. The Better-bit Construction Company has a series of equal, quarterly cash flows of
$1,200, starting with a cash flow on January 1, 2013 and ending on July 1, 2016.
Using an interest rate of 16% and quarterly compounding, determine the single
amount on January 1, 2013 equivalent to the total cash flow. [2 points]