Chevron Phillips has put into place new laboratory equipment for the production of chemicals; the initial cost is $1,100,000…

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Chevron Phillips has put into place new laboratory equipment for the production of chemicals; the initial cost is $1,100,000

installed. Chevron Phillips borrows 45% of all capital needed, and the borrowing rate is 12.5% over 4 years. The throughput rate

for in-process test samples has increased the capacity of the lab, with a net savings of $X per year. Depreciation follows MACRS-

GDS, MARR is 11%, and the planning horizon is 6 years with a salvage value of $140,000 at that time. Use Goal Seek or Solver in

Excel@ to determine the value of X such that MARR is exactly achieved, no more and no less, if:

a. The loan is paid back using Method 1 (interest only at the end of each year of the loan, plus principal at the end of the last

year).

b. The loan is paid back using Method 2 (equal annual principal payments plus interest on the unpaid loan balance).

c. The loan is paid back using Method 3 (equal annual principal plus interest payments during each year of the loan).

d. The loan is paid back using Method 4 (principal plus interest is paid at the end of the loan period).

An important step in this problem is determining the principal and interest payments on the loan for the laboratory equipment.

Method 1 has interest only at the end of each year of the loan plus principal at the end of the last year. Method 2 has equal

principal payments plus interest on the unpaid loan balance. Method 3 has equal annual principal plus interest payments during

each year of the loan. Method 4 has principal plus interest is paid at the end of the loan period. They financed 45% of the

$1,100,000 at 12.5% per year over 4 years and keep it for 6 years. Based on this information, fill in the following chart:

EOY

0

1

2

3

4

5

6

Method 1

Principal

$0.00

$0.00

$0.00

1a

$0.00

$0.00

Interest

1b

1b

1b

1b

$0.00

$0.00

Method 2

Principal Interest

2a

2a

2a

2a

$0.00

$0.00

$61,875.00

2b

$30,937.50

$15,468.75

$0.00

$0.00

Method 3

Principal

$102,815.42

$115,667.34

3a

$146,391.48

$0.00

$0.00

Interest

$61,875.00

$49,023.07

3b

$0.00

$0.00

$0.00

Method 4

Principal

$0.00

$0.00

$0.00

4a

$0.00

$0.00

Interest

$0.00

$0.00

$0.00

4b

$0.00

$0.00 1. a. $

b. $

2. a. $

b. $

3. a. $

b. $

4. a. $

b. $

Round your answers to 2 decimal places. Do not round your intermediate computations. Tolerance is ± 0.02.

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