Homework 4 ES 316

[Due: THURSDAY, October 20 (at the beginning of the class)]

1. Suppose that you are buying a car paying the price of the car, $12,000, plus 10% sales tax plus fees of $500.
The dealer offers to finance 90% of the cost of the car for 3 years at a nominal interest of 16% per year,
compounded quarterly. The financing program offered by the dealer starts with a quarterly payment of $300 and
each successive quarterly payment will increase by a constant dollar amount b.
(i) How much is the constant amount b?
(ii) How much is the 12th payment?

2. A construction firm can achieve $600 cost savings in the first month and the cost savings increases by $250
each month for the next 11 months (that is, from the 2nd month to the 12th month). At a nominal interest rate of
24% per year, compounded monthly, what is the equivalent monthly savings?

3. A manufacturing company sells each unit of its product at the market price of P = - $0.50 Q +$225.
The total cost of the company is TC = $15000 + $25 Q.
(i) Write down the TR and functions of the company.
(ii) What are the output levels at which the company breaks even?
(iii) What is the output level at which the profit is maximized?
(iv) Calculate the maximum profit.
(v) What is the output level at which TR is maximized?
(vi) Calculate profit at the level of output at which TR is maximized.

Formulae and Values from Appendix:

The present value of a series including both a uniform payment series and an arithmetic gradient series
= A x (P/A, i, n) + G x (P/G, i, n)

The equivalent uniform amount in a series including both a uniform payment series and an arithmetic gradient
series
= the uniform amount in the uniform payment series + the uniform amount in the arithmetic gradient series
= A + G x (A/G, i, n)

The interest rate: 2%

Uniform Payment Series Arithmetic Gradient
n Find A given F Find A given P Find F given A Find P given A Find A given G Find P given G
(A/F) (A/P) (F/A) (P/A) (A/G) (P/G)
10 .0913 .1113 10.950 8.983 4.337 38.954
11 .0822 .1022 12.169 9.787 4.802 46.996
12 .0746 .0946 13.412 10.575 5.264 55.669

The interest rate: 4%

Uniform Payment Series Arithmetic Gradient
n Find A given F Find A given P Find F given A Find P given A Find A given G Find P given G
(A/F) (A/P) (F/A) (P/A) (A/G) (P/G)
10 .0833 .1233 12.006 8.111 4.177 33.881
11 .0741 .1141 13.486 8.760 4.609 40.377
12 .0666 .1066 15.026 9.385 5.034 47.248