DIRECTIONS: SOLVE FOR WHAT IS BEING ASKED. TYPE THE COMPLETE SOLUTION.
1. EG Marine Systems is planning to supply a Japanese shipbuilder with aero- derivative gas turbines to power 11 DD-class destroyers for the Japanese Self- Defense Force. The buyer can pay the total contract price of $2,100,000 two years from now (when the turbines will be needed) or an equivalent amount now. At an interest rate of 15% per year, what is the equivalent amount now?
2. Ezra Mechanical Products is planning to set aside $160,000 now for possibly replacing its large synchronous refiner motors whenever it becomes necessary. If the replacement is expected to take place in 3-12 years, how much will the company have in its investment set-aside account? Assume a rate of return of 16% per year compounded quarterly.
3. Five years ago, Diamond Electronics, a division of De Beers, paid $3,150,000 for new diamond cutting tools. At that time, the company estimated an added revenue need of $500,000 to recover the investment at 10% per year. If there is an estimated 8 more years of service with a salvage value of $300,000, compare the revenue needed over the entire life with that estimated 5 years ago.
