Spreadsheet and Gradient Series Cashflow
1) A build-to-operate (BTO) company signed a contract to operate Alamosa County industrial wastewater
treatment plants for the next 20 years. The contract will pay the company $2.5 million now and amounts
increasing by $200,000 each year through year 20. At an interest rate of 10% per year, what is the present worth
now? Solve using spreadsheet.
2) A manufacturer of industrial grade gas handling equipment wants to have $500,000 in an equipment
replacement contingency fund 10 years from now. If the company plans to deposit a uniform amount of money
each year beginning now and continuing through year 10, what must be the size of each deposit? Assume the
account grows at a rate of 10% per year. Solve using spreadsheet
3) A construction management company is examining its cash flow requirements for the next 7 years. The
company expects to replace software and infield computing equipment at various times over a 7-year planning
period. Specifically, the company expects to spend $6000 one year from now, $9000 three years from now,
and $10,000 each year in years 6 through 10. What is the future worth in year 10 of the planned expenditures,
at an interest rate of 12% per year? Solve using spreadsheet
4) Silastic-LC-50 is a liquid silicon rubber designed to provide excellent clarity, superior mechanical properties,
and short cycle time for high speed manufacturers. One high-volume manufacturer used it to achieve smooth
release from molds. The company’s projected growth will result in silicon costs of $26,000 in years 1 and 2,
with costs increasing by $2000 per year in years 3 through 5. At an interest rate of 10% per year, what is the
present worth of these costs?
5) Find the present worth in year 0 for the cash flows shown. Let i = 10% per year.
6) Nippon Steel’s expenses for heating and cooling a large manufacturing facility are expected to increase
according to an arithmetic gradient beginning in year 2. If the cost is $550,000 this year (year 0) and will be
$550,000 again in year 1, but then are estimated to increase by $40,000 each year through year 12, what is the
equivalent annual worth in years 1 to 12 of these energy costs at an interest rate of 10% per year?
Comparison Among Alternatives
7) A suburban taxi company is considering buying taxis with diesel engines instead of gasoline engines. The
cars average 50,000 km a year, with a useful life of 3 years for the taxi with the gas engine and 4 years for the
diesel taxi. Other comparative information is as follows:
Determine the more economical choice if interest is 6%. (use PW and AW methods)
8) A certain industrial firm desires an economic analysis to determine which of two different machines should be
purchased. Each machine is capable of performing the same task in a given amount of time. Use the following
data to determine which machine you would choose (Assume the interest rate is 8%, use PW and AW methods)
9) A company is currently considering the addition of a new process to its activities. Two alternatives (A and B)
are available for the equipment needed to establish this new process as follows:
The company operates 8 hours per day for 300 working days per year. The profit per unit regardless of the
equipment cost is LE 0.32, and all quantities produced are expected to be sold regardless of their volume. For
an annual interest rate of 8%, define the alternative to be chosen using the AW and PW methods.
10) The following costs are associated with three tomato-peeling machines that are being considered for use in a
canning plant. If the canning company uses an interest rate of 12%, what is the best alternative using the AW
and PW methods?
11) A company that manufactures amplified pressure transducers is trying to compare between the machines shown
below. Determine which should be selected if the company's MARR is 12% per year.
12) RAB General Hospital is evaluating three contractors to manage its emergency ambulance for 5 years. Using
the present value approach, which of these contractors should be selected if interest rate is 10% per year?
Contractor A Contractor B Contractor C
Initial Cost $15,000 $20,000 $25,000
Annual M&O costs 1,600 1,000 900
Annual Benefits 8,000 10,000 13,000
Salvage Value 3,000 4,500 6,000
