Problem 1

A commercial real estate developer plans to borrow money to finance an upscale mall in an exclusive
area of the city. The developer plans to get a loan that will be repaid with uniform payments of
$400,000 over a 15-year period beginning in year 2 and ending in year 15. How much will a bank be
willing to loan at an interest rate of 10% per year?
Problem 2
A large water utility is planning to upgrade its SCADA system for controlling well pumps, booster
pumps, and disinfection equipment for centralized monitoring and control. Phase I will reduce labor
and travel costs by $28,000 per year. Phase II will reduce costs by an additional $20,000 per year,
that is $48,000. If phase I savings occur in years 0, 1, 2, and 3 and phase II savings occur in years 4
through 10, what is the present worth of the upgraded system in years 1 to 10 at an interest rate of 8%
per year?
Problem 3:
How much money would be accumulated 18 years from now from deposits of $15,000 per year for
five consecutive years, starting 3 years from now, if the interest rate is 8% per year?
Problem 4:
For the cash flows shown in the diagram, determine the value of x and 2x that will make the future
worth in year 8 equal to $100,000.

Problem 5:
El Paso Water is planning to install wind turbines to provide enhanced evaporation of reverse osmosis
concentrate from its inland desalting plant. The company will spend $1.5 million in year 1 and $2
million in year 2. Annual maintenance is expected to cost $65,000 per year through year 10.
Determine the equivalent annual cost of the project in years 1 through 10 at an interest rate of 6% per
year.
Problem 6:
Find the present worth in year 0 for the cash flows shown. Let i = 10% per year.
Problem 7:
Find the present worth at time 0 of the chrome plating costs shown in the cash flow diagram. Assume
i = 10% per year.

Problem 8:
For the cash flows shown, calculate the equivalent annual worth in years 1 through 4 at an interest
rate of 10% per year.
Year 0 1 2 3 4
Cash Flow, $ 250,000 275,000 300,000 325,000 375,000

Problem 9:
What is the present worth of a $50,000 municipal bond that has an interest rate of 4% per year, payable
quarterly? The bond matures in 15 years, and the market interest rate is 8% per year, compounded
quarterly.
Problem 10:
A mortgage bond issued by Automation Engineering is for sale for $8200. The bond has a face value
of $10,000 with a coupon rate of 8% per year, payable annually. What rate of return will be realized
if the purchaser holds the bond to maturity 5 years from now?