Interest Rates and Project Returns
Cost Analysis and Engineering Economy
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Interest compounding (6 questions)
Interest compounding (6 questions)
Suppose you have $1,000,000 in the bank and the bank pays 3% interest each quarter (i.e., every three months). When the bank pays 3% interest each quarter, we say that the nominal annual interest rate is 4 X 3% = 12% per year.
Internal rate of return I (3 questions)
Internal rate of return I (3 questions)
Suppose you invest $100,000 into a mutual fund and exit the fund after one year with $110,000.
Internal rate of return II (5 questions)
Internal rate of return II (5 questions)
A manufacturing plant is considering an equipment that can increase profits (through increased productivity) by $7,000 each year. The equipment costs $24,500, can operate for five years and be salvaged for $8,872.65 at the end of its service.
Internal rate of return III (3 questions)
Internal rate of return III (3 questions)
Consider the following cash flow:
Specified borrowing and investment rate (3 questions)
Specified borrowing and investment rate (3 questions)
A manufacturing plant is considering an equipment that can increase profits (through increased productivity) by $12,000 each year. The equipment costs $30,000, can operate for five years. At the end of its service, the equipment will have to be professionally disposed at a cost of $15,000. The company can borrow funds at an annual interest rate of 15% and excess funds can be invested to obtain an annual return of 10%.
A note of thanks to Lucia Tara Stockmann for the development of this online class material.
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