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ICA T7

The document discusses financial calculations related to cash flows, including the equivalent single sum of money for given cash flows at a 10% interest rate and a comparison between purchasing and renting equipment. It provides formulas for calculating net values and the conditions under which purchasing becomes more economical than renting. Additionally, it includes a formula for calculating economic criteria using interest factors without performing calculations.

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mohamed.hassan031
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14 views

ICA T7

The document discusses financial calculations related to cash flows, including the equivalent single sum of money for given cash flows at a 10% interest rate and a comparison between purchasing and renting equipment. It provides formulas for calculating net values and the conditions under which purchasing becomes more economical than renting. Additionally, it includes a formula for calculating economic criteria using interest factors without performing calculations.

Uploaded by

mohamed.hassan031
Copyright
© © All Rights Reserved
We take content rights seriously. If you suspect this is your content, claim it here.
Available Formats
Download as PDF, TXT or read online on Scribd
You are on page 1/ 3

P 2]

What single sum of money at the end of year 4 is equivalent to the cash flow profile shown
below? Use a 10% interest rate in your analysis.

Outflow:
Outflow = 250(1.1)! + 200(1.1)" + 150(1.1)# + 100(1.1)$

Inflow:
Inflow = 100(1.1)%# + 100(1.1)%" + 100(1.1)%!

Net Value:
Net Value = Inflow − Outflow = −591.065 "net flow"

P 4] ii
A construction company can purchase a piece of equipment for EGP 50,000 and
spend EGP 100 per day on maintenance. It will have a 5-year life with no salvage
value. The company can also rent similar equipment for EGP 400 per day. If the
interest rate is 15%, how many days of use would make the purchase option
more economical than the rental?
Given Data:
• P (purchase price) = EGP 50,000

• Maintenance cost = EGP 100/day

• Rental cost = EGP 400/day

• Life of equipment = 5 years

• Interest rate (i) = 15% annually

• Find number of days (x) where both options cost the same.

1. Convert Purchase Price to annual equivalent:


&
𝐚𝐧𝐧𝐮𝐚𝐥 𝐞𝐪𝐮𝐢𝐯𝐚𝐥𝐞𝐧𝐭 (𝐀/𝐏) = 𝑃 ⋅ =' , 15%, 5@

(𝐴/𝑃, 15%, 5) = 0.2983

So:

Annual Equivalent = 50,000 ⋅ 0.2983 = 14,915 EGP/year


2. Renting Cost = 400 EGP/day

So, we want to find the number of days x where both options cost the same:
Total cost if you buy = Total cost if you rent
That is:

14,915 + 100𝑥 = 400𝑥

This becomes:
14,915
14,915 + 100𝑥 = 400𝑥 ⇒ 𝑥 = = 49.72 ≈ 50 days
300

Thus, Answer: Choice (c).


P 5] b
For each of the following cash flow diagrams, write a formula using maximum of 5 interest
factors to show how the required economic criterion can be calculated. [DO NOT
CALCULATE]

𝐴𝑊 = [10(𝑃|𝐴, 𝑖, 3) × (𝑃|𝐹, 𝑖, 5) + 15(𝑃|𝐴, 𝑖, 2) × (𝑃|𝐹, 𝑖, 5)] × (𝐴|𝑃, 𝑖, 7)

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