# Economics of a new manufacturing process

2. A machine is under consideration for a new manufacturing process. The interest rate is 10% computed semiannually. Compute the future worth of this alternative:

First cost = $70,000

Semiannual cost = $6,000

Semiannual income = $18,000

Salvage value = $9,000

Life in years = 5

4. You deposit $5,000 in a savings certificate. The bank pays compound interest at an annual rate of 12%, compounded quarterly. At the end of 4 years, how much money have you earned in the savings certificate?

7. Consider the following sets of investments projects in Table 1. All projects have a 5 year investment life, with and interest rate of 10%.

Table 1 Project Cash Flow ($)

N A B

0 -$17,000 -$18,000

1 4100 3300

2 4200 3500

3 4300 3700

4 4400 3900

5 4500 4100

5 (Salvage Value) 5000 5500

Compute the present worth of project A, in Table 1.

8. How much do you have to pay for a bond rate that pays 6% dividend compounded semiannually, with a face value of $5,000 that is going to be paid (maturity) in 5 years. The buyer wants to have an interest rate profit of 8% compounded semiannually.

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