Benefit- Cost Net PV

Present Cost Initial Initial Initial

Project Outlay Worth Ratio Net PV solution Solution Solution
1 100 300 3.00 200 1 100 200
2 20 50 2.50 30 1 20 30
3 150 350 2.33 200 1 150 200
4 50 110 2.20 60 1 50 60
5 50 100 2.00 50 1 50 50
6 150 250 1.67 100 0 0 0
7 150 200 1.33 50 0 0 0
Totals 370 540
 Cost Net PV
Optimal Optimal Optimal
Solution Solution Solution
1 100 200
0 0 0
1 150 200
1 50 60
1 50 50
1 150 100
0 0 0
500 610
500
 NPV Optima
Cost
($1,000 l x-
($1,000 values Cost NPV
)
)
Road between Augen and Burger
1 Concrete, 2 lanes 2,000 4,000 0 0 0
2 Concrete, 4 lanes 3,000 5,000 1 3,000 5,000
3 Asphalt, 2 lanes 1,500 3,000 0 0 0
4 Asphalt, 4 lanes 2,200 4,300 0 0 0
Bridge at Cay Road
5 Repair Exisiting 500 1,000 1 500 1,000
6 Add Lane 1,500 1,500 0 0 0
7 New Structure 2,500 2,000 0 0 0
Traffic Control in Downsburg
8 Traffic lights 100 300 0 0 0
9 Turn lanes 600 1,000 0 0 0
10 Underpass 1,000 2,000 1 1,000 2,000
At most one project can be selected for each majorTotals 4,500 8,000

Budget 5,000
Goals

1 1

1 1

1 1
 Bonds
Yr 1 2 3 4 5 6 7 8 9 10 Req.d ActualSurplus
1 10 7 8 6 7 5 10 8 7 100 100 171.74 71.74
2 10 7 8 6 7 5 10 8 107 200 200.00 0.00
3 10 7 8 6 7 5 110 108 800 800.00 0.00
4 10 7 8 6 7 105 100 119.34 19.34
5 10 7 8 106 107 800 800.00 0.00
6 110 107 108 1200 ### 0.00
p 109 94.8 99.5 93.1 97.2 92.9 110 104 102 95.2 2381.1
x 0 11 0 6.81 0 0 0 6.3 0.28 0 Cost

Bonds
Yr 1 2 3 4 5 6 7 8 9 10
1 9.524 6.667 7.619 5.714 6.667 4.762 9.524 7.619 6.667 95.24
2 9.07 6.349 7.256 5.442 6.349 4.535 9.07 7.256 97.05 0
3 8.638 6.047 6.911 5.183 6.047 4.319 95.02 93.29 0 0
4 8.227 5.759 6.582 4.936 5.759 86.38 0 0 0 0
5 7.835 5.485 6.268 83.05 83.84 0 0 0 0 0
6 82.08 79.85 80.59 0 0 0 0 0 0 0

Price 125.4 110.2 115.2 104.3 108.7 100 113.6 108.2 103.7 95.24 Total

Error 268.3 235.7 247.3 126.1 131.3 50.41 13.08 17.39 2.954 0.001 1092.498
 Short Discount Factor
Surplus Yr r 1+r s
1 0.05 1.05 0.9523809524 0.050
2 0.05 1.05 0.9070294785 0.050
3 0.05 1.05 0.8638375985 0.050
4 0.05 1.05 0.8227024748 0.050
5 0.05 1.05 0.7835261665 0.050
6 0.05 1.05 0.7462153966 0.050
 Bonds
Yr 1 2 3 4 5 6 7 8 9 10 Req.d ActualSurplus
1 10 7 8 6 7 5 10 8 7 100 100 171.74 71.74
2 10 7 8 6 7 5 10 8 107 200 200.00 0.00
3 10 7 8 6 7 5 110 108 800 800.00 0.00
4 10 7 8 6 7 105 100 119.34 19.34
5 10 7 8 106 107 800 800.00 0.00
6 110 107 108 1200 ### 0.00
p 109 94.8 99.5 93.1 97.2 92.9 110 104 102 95.2 2381.1
x 0 11 0 6.81 0 0 0 6.3 0.28 0 Cost

Bonds
Yr 1 2 3 4 5 6 7 8 9 10
1 9.521 6.664 7.616 5.712 6.664 4.76 9.521 7.616 6.664 95.21
2 8.91 6.237 7.128 5.346 6.237 4.455 8.91 7.128 95.34 0
3 8.295 5.806 6.636 4.977 5.806 4.147 91.24 89.59 0 0
4 7.575 5.302 6.06 4.545 5.302 79.54 0 0 0 0
5 6.841 4.789 5.473 72.51 73.2 0 0 0 0 0
6 67.84 65.99 66.61 0 0 0 0 0 0 0

Price 109 94.79 99.52 93.09 97.21 92.9 109.7 104.3 102 95.21 Total

Error 0 ### 0.001 ### ### ### 0.105 0.109 ### ### 0.215394
 Short Discount Factor
Surplus Yr r 1+r s
1 0.05036 1.0504 0.9520577865 0.050
2 0.06848 1.0685 0.8910413493 0.059
3 0.07419 1.0742 0.829497275 0.064
4 0.09505 1.0951 0.7574969937 0.072
5 0.10732 1.1073 0.6840797168 0.079
6 0.10916 1.1092 0.6167567676 0.084

12%

10%

8%

6%

4%

2%

0%
0 1 2 3 4 5 6 7

Short Rates
 Bonds
Yr 1 2 3 4 5 6 7 8 9 10 Req.d Actual
1 10 7 8 6 7 5 10 8 7 100 100 171.74
2 10 7 8 6 7 5 10 8 107 200 275.35
3 10 7 8 6 7 5 110 108 800 880.51
4 10 7 8 6 7 105 100 205.83
5 10 7 8 106 107 800 915.89
6 110 107 108 1200 ###
p 109 94.8 99.5 93.1 97.2 92.9 110 104 102 95.2 2381.1
x 0 11 0 6.81 0 0 0 6.3 0.28 0 Cost Net Cost

Bonds
Yr 1 2 3 4 5 6 7 8 9 10
1 9.521 6.664 7.616 5.712 6.664 4.76 9.521 7.616 6.664 95.21
2 8.91 6.237 7.128 5.346 6.237 4.455 8.91 7.128 95.34 0
3 8.295 5.806 6.636 4.977 5.806 4.147 91.24 89.59 0 0
4 7.575 5.302 6.06 4.545 5.302 79.54 0 0 0 0
5 6.841 4.789 5.473 72.51 73.2 0 0 0 0 0
6 67.84 65.99 66.61 0 0 0 0 0 0 0

Price 109 94.79 99.52 93.09 97.21 92.9 109.7 104.3 102 95.21 Total

Error 0 ### 0.001 ### ### ### 0.105 0.109 ### ### 0.215394
 Short Discount Factor
SurplusEnd of Year Balance Yr r 1+r
71.74 75.35 1 0.050 1.050 0.952
75.35 80.51 2 0.068 1.068 0.891
80.51 86.49 3 0.074 1.074 0.829
105.83 115.89 4 0.095 1.095 0.757
115.89 128.33 5 0.107 1.107 0.684
128.33 142.34 6 0.109 1.109 0.617
87.79
Net Cost 2293.35

12%

10%

8%

6%

4%

2%

0%
0 1 2 3 4 5 6

Short Rates
nt Factor
s
0.050
0.059
0.064
0.072
0.079
0.084

4 5 6 7

Rates
 Bonds
Yr 1 2 3 4 5 6 7 8 9 10 Req.d Actual
1 10 7 8 6 7 5 10 8 7 100 100 381.98
2 10 7 8 6 7 5 10 8 107 200 678.15
3 10 7 8 6 7 5 110 108 800 892.87
4 10 7 8 6 7 105 100 481.74
5 10 7 8 106 107 800 800.00
6 110 107 108 1200 ###
p 109 94.8 99.5 93.1 97.2 92.9 110 104 102 95.2 5173.1
x 0 55 0 0 0 0 0 0 0 0 Cost Net Cost

Bonds
Yr 1 2 3 4 5 6 7 8 9 10
1 9.521 6.664 7.616 5.712 6.664 4.76 9.521 7.616 6.664 95.21
2 8.91 6.237 7.128 5.346 6.237 4.455 8.91 7.128 95.34 0
3 8.295 5.806 6.636 4.977 5.806 4.147 91.24 89.59 0 0
4 7.575 5.302 6.06 4.545 5.302 79.54 0 0 0 0
5 6.841 4.789 5.473 72.51 73.2 0 0 0 0 0
6 67.84 65.99 66.61 0 0 0 0 0 0 0

Price 109 94.79 99.52 93.09 97.21 92.9 109.7 104.3 102 95.21 Total

Error 0 ### 0.001 ### ### ### 0.105 0.109 ### ### 0.215394
 Short Discount Factor
SurplusEnd of Year Balance Yr r 1+r
281.98 296.18 1 0.050 1.050 0.952
478.15 510.90 2 0.068 1.068 0.891
92.87 99.76 3 0.074 1.074 0.829
381.74 418.02 4 0.095 1.095 0.757
0.00 0.00 5 0.107 1.107 0.684
4638.78 5145.14 6 0.109 1.109 0.617
3173.30
Net Cost 1999.76

12%

10%

8%

6%

4%

2%

0%
0 1 2 3 4 5 6

Short Rates
nt Factor
s
0.050
0.059
0.064
0.072
0.079
0.084

4 5 6 7

Rates
 Bonds
Yr 1 2 3 4 5 6 7 8 9 10 Req.d Actual
1 10 7 8 6 7 5 10 8 7 100 100 ###
2 10 7 8 6 7 5 10 8 107 200 ###
3 10 7 8 6 7 5 110 108 800 ###
4 10 7 8 6 7 105 100 ###
5 10 7 8 106 107 800 ###
6 110 107 108 1200 ###
p 109 94.8 99.5 93.1 97.2 92.9 110 104 102 95.2 28440
x 0 300 0 0 0 0 0 0 0 0 Cost Net Cost

Bonds
Yr 1 2 3 4 5 6 7 8 9 10
1 9.521 6.664 7.616 5.712 6.664 4.76 9.521 7.616 6.664 95.21
2 8.91 6.237 7.128 5.346 6.237 4.455 8.91 7.128 95.34 0
3 8.295 5.806 6.636 4.977 5.806 4.147 91.24 89.59 0 0
4 7.575 5.302 6.06 4.545 5.302 79.54 0 0 0 0
5 6.841 4.789 5.473 72.51 73.2 0 0 0 0 0
6 67.84 65.99 66.61 0 0 0 0 0 0 0

Price 109 94.79 99.52 93.09 97.21 92.9 109.7 104.3 102 95.21 Total

Error 0 ### 0.001 ### ### ### 0.105 0.109 ### ### 0.215394
 Short Discount Factor
SurplusEnd of Year Balance Yr r 1+r
2000.00 2100.71 1 0.050 1.050 0.952
4000.71 4274.67 2 0.068 1.068 0.891
5574.67 5988.28 3 0.074 1.074 0.829
7988.28 8747.57 4 0.095 1.095 0.757
### 11125.90 5 0.107 1.107 0.684
### 46613.30 6 0.109 1.109 0.617
28749.07
Net Cost -309.07
Arbitrage Opportunity!

against our assumptions 12%

10%

8%

6%

4%

2%

0%
0 1 2 3 4 5 6

Short Rates
nt Factor
s
0.050
0.059
0.064
0.072
0.079
0.084

4 5 6 7

Rates
 Bonds
Yr 1 2 3 4 5 6 7 8 9 10 Req.d Actual
1 10 7 8 6 7 5 10 8 7 100 100 156.39
2 10 7 8 6 7 5 10 8 107 200 215.62
3 10 7 8 6 7 5 110 108 800 800.00
4 10 7 8 6 7 105 100 106.24
5 10 7 8 106 107 800 ###
6 110 107 108 1200 ###
p 109 94.8 99.5 93.1 97.2 92.9 110 104 102 95.2 2300.4
x 0 0 0 18 0 0 0 6.27 0 0 Cost Net Cost

Bonds
Yr 1 2 3 4 5 6 7 8 9 10
1 9.521 6.664 7.616 5.712 6.664 4.76 9.521 7.616 6.664 95.21
2 8.91 6.237 7.128 5.346 6.237 4.455 8.91 7.128 95.34 0
3 8.295 5.806 6.636 4.977 5.806 4.147 91.24 89.59 0 0
4 7.575 5.302 6.06 4.545 5.302 79.54 0 0 0 0
5 6.841 4.789 5.473 72.51 73.2 0 0 0 0 0
6 67.84 65.99 66.61 0 0 0 0 0 0 0

Price 109 94.79 99.52 93.09 97.21 92.9 109.7 104.3 102 95.21 Total

Error 0.00 0.00 0.00 0.00 0.00 0.00 0.11 0.11 0.00 0.00 0.215394
 Short Discount Factor
SurplusEnd of Year Balance Yr r 1+r
56.39 59.23 1 0.050 1.050 0.952
15.62 16.69 2 0.068 1.068 0.891
0.00 0.00 3 0.074 1.074 0.829
6.24 6.83 4 0.095 1.095 0.757
1083.69 1200.00 5 0.107 1.107 0.684
0.00 0.00 6 0.109 1.109 0.617
0.00
Net Cost 2300.45

12%

10%

8%

6%

4%

2%

0%
0 1 2 3 4 5 6

Short Rates
nt Factor
s
0.050
0.059
0.064
0.072
0.079
0.084

4 5 6 7

Rates
 Bonds
Yr 1 2 3 4 5 6 7 8 9 10 Req.d Actual
1 10 7 8 6 7 5 10 8 7 100 100 537.00
2 10 7 8 6 7 5 10 8 107 200 596.01
3 10 7 8 6 7 5 110 108 800 ###
4 10 7 8 6 7 105 100 475.84
5 10 7 8 106 107 800 ###
6 110 107 108 1200 ###
p 109 94.8 99.5 93.1 97.2 92.9 110 104 102 95.2 2316.7
x 0 5 0 9 0 0 0 6 0 4 Cost Net Cost

Bonds
Yr 1 2 3 4 5 6 7 8 9 10
1 9.521 6.664 7.616 5.712 6.664 4.76 9.521 7.616 6.664 95.21
2 8.91 6.237 7.128 5.346 6.237 4.455 8.91 7.128 95.34 0
3 8.295 5.806 6.636 4.977 5.806 4.147 91.24 89.59 0 0
4 7.575 5.302 6.06 4.545 5.302 79.54 0 0 0 0
5 6.841 4.789 5.473 72.51 73.2 0 0 0 0 0
6 67.84 65.99 66.61 0 0 0 0 0 0 0

Price 109 94.79 99.52 93.09 97.21 92.9 109.7 104.3 102 95.21 Total

Error 0 ### 0.001 ### ### ### 0.105 0.109 ### ### 0.215394
 Short Discount Factor
SurplusEnd of Year Balance Yr r 1+r
437.00 459.01 1 0.050 1.050 0.952
396.01 423.12 2 0.068 1.068 0.891
360.12 386.84 3 0.074 1.074 0.829
375.84 411.57 4 0.095 1.095 0.757
600.57 665.02 5 0.107 1.107 0.684
0.02 0.02 6 0.109 1.109 0.617
0.01
Net Cost 2316.69

12%

10%

8%

6%

4%

2%

0%
0 1 2 3 4 5 6

Short Rates
nt Factor
s
0.050
0.059
0.064
0.072
0.079
0.084

4 5 6 7

Rates
 r 10.00%

POLICY 1 POLICY 2 POLICY 3 POLICY 4

1 4.90 4.90 0.00 0.00
2 4.50 0.00 4.90 0.00
3 8.10 9.00 9.00 10.00
14.26 11.22 10.81 7.51

3.04
Growth Factor 2
Fish Factor 0.5
Fish Population
Starting Fish Population 10 10 20 40 80
Extraction Rate 70.00% 10 20 40
10 20
r 0.25 0.8 10
Revenue when not Fishing
0 0 0
0 0
0

Revenue when Fishing

7 14 28
7 14
7

Running Net Present Value Taking Optimal Decisions

20.16 25.2 28 0
12.6 14 0
7 0
0

No Fish Fish Fish

Fish Fish
Fish
 Running Net Present Value When Not Fishing
20.16 22.4 0
11.2 0
0

Running Net Present Value When Fishing

17.08 25.2 28
12.6 14
7

timal Decisions
Growth Factor 2
Fish Factor 0.5

Starting Fish Population 10

Extraction Rate 70.00%

r 0.25 0.8
CFS 1 CFS 2 CFS 3 CFS 4
0.00 0.00 7.00 7.00
0.00 14.00 0.00 7.00
28.00 14.00 14.00 7.00
17.92 20.16 15.96 17.08
Years gj j rj dj Kj (Eq. 11) Mj (Eq. 12) xj zj (Eq. 9)
10 0.000 2393.07
9 400 500 10% 0.909 80.000 0.40 3988.45 1595.38
8 400 500 10% 0.909 126.281 0.33 5928.78 1940.33
7 400 500 10% 0.909 155.470 0.29 8294.31 2365.53
6 400 500 10% 0.909 174.790 0.26 11188.33 2894.01
5 400 500 10% 0.909 187.965 0.24 14742.82 3554.50
4 400 500 10% 0.909 197.126 0.23 19124.74 4381.92
3 400 500 10% 0.909 203.580 0.22 24543.91 5419.17
2 400 500 10% 0.909 208.170 0.21 31263.23 6719.31
1 400 500 10% 0.909 211.454 0.21 39611.55 8348.32
0 400 500 10% 0.909 213.815 0.21 50000.00 10388.45

$350,000
Present Value of Mine at beginning of Year 9
$300,000

$250,000

$200,000

$150,000

$100,000

$50,000

$0
0 500 1,000 1,500 2,000 2,500 3,000 3,500 4,000 4,500
Ounced Mined at beginning of Year 9

60,000

50,000
 60,000

50,000

40,000
Ounces of Gold

30,000

20,000

10,000

0
0 1 2 3 4 5 6 7 8 9 10

Year
Gold remaining in mine Optimal Gold Mining Policy

$12,000,000

$10,000,000

Present Value of Mine

$8,000,000

$6,000,000

$4,000,000

$2,000,000

$0
0 1 2 3 4 5 6 7 8 9 10

Year
$2,000,000

$0
0 1 2 3 4 5 6 7 8 9 10

Year
 Vj x0 50000 Ounces of gold remaining at beginning of 10 year pe
0 r 10.00% Interest rate at the beginning of the lease
$319,076.33 g 400 Price of Gold per ounce at beginning of lease
$748,692.62 500 Cost Coefficient for mining gold at beginning of lease
###
### Assumption 1: Gold price is constant over the years

### Assumption 2: Interest rate is constant over the years

### Assumption 3: Cost coefficient for extractions is constant over the years

###
###
###
### 1069075

9
8 xj 3988.454 a -0.1253619
2 gj 400 b 400
3 aj 500 c 0
4 rj 0.1 -b/2a 1595.3817
5 dj 0.909091 z 20
6 Kj+1 0 Cost 7949.8553
10 Vj 319076.3
LB 0
UB 3988.4542
Steps 100
Width 39.884542

7949.855
0 0
Year 9 1 39.884542
2 79.769083
Ounced Mined at beginning of Ye 3 119.65362
Present Value of Mine at beginni 4 159.53817
Ounced Mined at beginning of 5 199.42271
Present Value of Mine at beginni 6 239.30725
7 279.19179
8 319.07633
1595.382 0 9 358.96087
500 4,000 4,500 1595.382 319076.3 10 398.84542
11 438.72996
0 319076.3 12 478.6145
1595.382 319076.3 13 518.49904
14 558.38358
15 598.26812
 16 638.15267
17 678.03721
18 717.92175
19 757.80629
20 797.69083
21 837.57537
22 877.45992
23 917.34446
24 957.229
25 997.11354
26 1036.9981
27 1076.8826
28 1116.7672
29 1156.6517
30 1196.5362
31 1236.4208
32 1276.3053
33 1316.1899
34 1356.0744
35 1395.959
36 1435.8435
8 9 10 37 1475.728
38 1515.6126
39 1555.4971
40 1595.3817
g Policy
41 1635.2662
42 1675.1507
43 1715.0353
44 1754.9198
45 1794.8044
46 1834.6889
47 1874.5735
48 1914.458
49 1954.3425
50 1994.2271
51 2034.1116
52 2073.9962
53 2113.8807
54 2153.7652
55 2193.6498
56 2233.5343
57 2273.4189
58 2313.3034
59 2353.188
60 2393.0725
61 2432.957
62 2472.8416
63 2512.7261
64 2552.6107
65 2592.4952

8 9 10
 66 2632.3797
8 9 10 67 2672.2643
68 2712.1488
69 2752.0334
70 2791.9179
71 2831.8025
72 2871.687
73 2911.5715
74 2951.4561
75 2991.3406
76 3031.2252
77 3071.1097
78 3110.9942
79 3150.8788
80 3190.7633
81 3230.6479
82 3270.5324
83 3310.417
84 3350.3015
85 3390.186
86 3430.0706
87 3469.9551
88 3509.8397
89 3549.7242
90 3589.6087
91 3629.4933
92 3669.3778
93 3709.2624
94 3749.1469
95 3789.0315
96 3828.916
97 3868.8005
98 3908.6851
99 3948.5696
100 3988.4542
ginning of 10 year period
f the lease
nning of lease
d at beginning of lease
r 0.15
g 0.1
D0 1.37 per share
V0 30.14 per share
 Income Statement at the end of year n
Before-tax cash flow from operation Yn
Depreciation Cn
Taxable income Yn - Cn
Taxes (@ 34%) .34 (Yn - Cn)
After-tax income 0.66 (Yn - Cn)
After-tax cash flow (after-tax income plus depreci 0.66 (Yn - Cn) + Cn
Sustaining investment u Yn
Free cash flow 0.66 (Yn - Cn) + Cn - u Yn
Depreciation is assumed to be a times the amount in the capital account
 0.1 Depreciation Factor
0.34 Tax Rate
r 0.15 Interest Rate 10%
u 37.76% Reinvestment Ratio
g(u) 9.00% Growth Factor 9%
Y0 10
8%
C0 19.8
PV 58.37513 0.349991 0.198667 166.7903 7%
LB 0 Growth
6%Rate
UB 1
Steps 100 5%
Width 0.01
4%
0.090044 58.37513
0 0 3%
1 0.01
2 0.02
2%
3 0.03
4 0.04
1%
5 0.05
6 0.06
0%
7 0.07
8 0.08
0% 10% 20% 30% 40%
9 0.09
10 0.1
Reinve
11 0.11
12 0.12
13 0.13 $70
14 0.14
15 0.15
16 0.16 $60
17 0.17
18 0.18 Present Value (in millions)
19 0.19 $50
20 0.2
21 0.21
22 0.22 $40
23 0.23
24 0.24
25 0.25 $30
26 0.26
27 0.27
28 0.28 $20
29 0.29
30 0.3
31 0.31 $10
32 0.32
33 0.33
$0
0% 10% 20% 30% 40%

Reinve
 $20

$10

34 0.34 $0
35 0.35 0% 10% 20% 30% 40%
36 0.36
37 0.37 Reinve
38 0.38
39 0.39
40 0.4
41 0.41
42 0.42
43 0.43
44 0.44
45 0.45
46 0.46
47 0.47
48 0.48
49 0.49
50 0.5
51 0.51
52 0.52
53 0.53
54 0.54
55 0.55
56 0.56
57 0.57
58 0.58
59 0.59
60 0.6
61 0.61
62 0.62
63 0.63
64 0.64
65 0.65
66 0.66
67 0.67
68 0.68
69 0.69
70 0.7
71 0.71
72 0.72
73 0.73
74 0.74
75 0.75
76 0.76
77 0.77
78 0.78
79 0.79
80 0.8
81 0.81
82 0.82
83 0.83
 84 0.84
85 0.85
86 0.86
87 0.87
88 0.88
89 0.89
90 0.9
91 0.91
92 0.92
93 0.93
94 0.94
95 0.95
96 0.96
97 0.97
98 0.98
99 0.99
100 1
 3.96
39.6

37.76% 0
e 37.76% 9.00%

0 0.090044
37.76% 0.090044

10% 20% 30% 40% 50% 60% 70% 80% 90% 100%

Reinvestment Ratio

37.76% 0
37.76% 58.37513
ue (in millions)
0 58.37513
37.76% 58.37513

10% 20% 30% 40% 50% 60% 70% 80% 90% 100%

Reinvestment Ratio
10% 20% 30% 40% 50% 60% 70% 80% 90% 100%

Reinvestment Ratio