1. Homework # 3
Due Wed May 26

2. #1. Cost Savings Project under consideration 3 year life span
Save $360 per year in operating costs
Increase revenues by $200 per year
Financed by 3-year loan at 5%

3. #2. Basic Replacement Problem
Company is considering replacing a machine with a new design.
New machine cost $100k; life of 8 years
Will increase earnings from $20k per year to $51k per year
Cost of capital is 12%
Old machine has no salvage value
Suppose that old machine could be sold for $15K
How would that affect the calculation