Chapter 2

Use of Interest Tables

2.01 Look up the numerical value for the following factors from the interest tables:
1. ( P/F ,6%,8)
2. ( A/P ,10%,10)
3. ( A/G ,15%,20)
4. ( A/F ,2%,30)
5. ( P/G ,35%,15)

Answer: 0.6274, 0.16275, 5.3651, 0.02465, and 7.5974

Determination of F, P, and A
2.02 How much can Haydon Rheosystems, Inc., afford to spend now on an energy management
system if the software will save the company $21,300 per year for the next 5 years? Use an
interest rate of 10% per year.
Answer: P = $80,744

2.05 A family that won a $100,000 prize on America’s Funniest Home Videos decided to put one-
half of the money in a college fund for their child who was responsible for the prize. If the
fund earned interest at 6% per year, how much was in the account 14 years after it was
started?
Answer: F = $113,045

2.09 If GHD Plastics purchases a new building now for $1.3 million for its corporate headquarters,
what must the building be worth in 10 years? The company expects all expenditures to earn
a rate of return of at least 18% per year.
Answer: F = $6,803,940

2.10 CGK Rheosystems makes high-performance rotational viscometers capable of steady shear
and yield stress testing in a rugged, compact footprint. How much could the company afford
to spend now on new equipment in lieu of spending $200,000 one year from now and
$300,000 three years from now, if the company uses an interest rate of 15% per year?
Answer: P = $371,170
2.19 Henry Mueller Supply Co. sells tamperproof, normally open thermostats (i.e., thermostat
closes as temperature rises). Annual cash flows are shown in the table below. Determine the
future worth of the net cash flows at an interest rate of 10% per year.

Answer: F = $1,257,949

Factor Values
2.20 A company that makes self-clinching fasteners expects to purchase new production-line
equipment in 3 years. If the new units will cost $350,000, how much should the company set
aside each year, if the account earns 10% per year?

Answer: A = $105,739

Arithmetic Gradient
2.25 Profits from recycling paper, cardboard, aluminum, and glass at a liberal arts college have
increased at a constant rate of $1100 in each of the last 3 years. If this year’s profit (end of
year 1) is expected to be $6000 and the profit trend continues through year 5,
a) what will the profit be at the end of year 5, and
b) what is the present worth of the profit at an interest rate of 8% per year?

Answer: a) $10,400
b) P = $32,066

2.26 A report by the Government Accountability Office (GAO) shows that the GAO expects the
U.S. Postal Service to lose a record $7 billion at the end of this year, and if the business
model is not changed, the losses will total $241 billion by the end of year 10. If the losses
increase uniformly over the 10-year period, determine the following:
a) The expected increase in losses each year
b) The loss 5 years from now
c) The equivalent uniform worth of the losses at an interest rate of 8% per year

Answer: a) G = $26 B b) $111 B c) A = 107.7 B

2.27 Rolled ball screws are suitable for high-precision applications such as water jet cutting. Their
total manufacturing cost is expected to decrease because of increased productivity, as shown
in the table. Determine the equivalent annual cost at an interest rate of 8% per year.

Year 1 2 3 4 5 6 7 8

Cost, $K 200 195 190 185 180 175 170 165

Answer: A = 184.51

2.31 Apple Computer wants to have $2.1 billion available 5 years from now to finance production
of a handheld “electronic brain” that, based on your behavior, will learn how to control nearly
all the electronic devices in your home, such as the thermostat, coffee pot, TV, and sprinkler
system. The company expects to set aside uniformly increasing amounts of money each year
to meet its goal. If the amount set aside at the end of year 1 is $50 million, how much will
the constant increase G have to be each year? Assume the investment account grows at a rate
of 18% per year.

Answer: G = $145.58 M

Geometric Gradient
2.34 Determine the present worth of a geometric gradient series with a cash flow of $50,000 in
year 1 and increases of 6% each year through year 8. The interest rate is 10% per year. Then
determine the annual worth of the geometric gradient series.

Answer: P = $320,573 A = 16,100

2.37 Determine the present worth & future worth of a maintenance contract that has a cost of
$30,000 in year 1 and annual increases of 6% per year for 10 years. Use an interest rate of 6%
per year.

Answer: P = $255,738 F = $552,117

Interest Rate& Rate of Return

2.39 If the value of Jane’s retirement portfolio increased from $170,000 to $813,000 over a 15 -
year period, with no deposits made to the account over that period, what annual rate of return
did she make?
Answer: i = 11%

Number of Years
2.45 Acme Bricks, a masonry products company, wants to have $600,000 on hand before it invests
in new conveyors, trucks, and other equipment. If the company sets aside $80,000 per year
in an account that increases in value at a rate of 15% per year, how many years will it be
before Acme can purchase the equipment?
Answer: n = 5.4 years

2.47 You own a small engineering consulting company. If you invest $200,000 of the company’s
money in a natural gas well that is expected to provide income of $29,000 per year, how long
must the well produce at that rate in order to get the money back plus a rate of return of 10%
per year

Answer: n = 12.3 years

2.50 The energy costs of a company involved in powder coating of outdoor furniture are expected
to increase at a rate of $400 per year. The cost at the end of the next year (year 1) is expected
to be $13,000. How many years will it be from now before the equivalent annual cost is
$16,000 per year, if interest is 8% per year?

Answer: n = 21.8 years

2.52 The equivalent annual worth of an increasing arithmetic gradient is $135,300. If the cash flow
in year 1 is $35,000 and the gradient amount is $19,000, what is the value of n at an interest
rate of 10% per year?

Answer: n = 15 years