Download Carefully read each problem before answering. Please write clearly

Carefully read each problem before answering. Please write clearly, and show and label all factors
used in any problem requiring mathematical calculations.
1. Two different alternatives shown in the table below are being considered. MARR = 12%. Determine the
answers to the following questions (use the calculations necessary to choose between the alternatives).
X
Y
Initial Cost
$6,000
$1,500
Annual Benefits
$810
$230
Life (years)
20
10
•
The NPW of alternative X is closest to ________. (6)
a)
b)
c)
d)
•
The NPW of alternative Y is is closest to ________. (6)
a)
b)
c)
d)
•
$5.00
$84.50
$53.40
$49.89
-$51.95
-$123.45
-$265.13
-$385.20
The most desirable alternative is ________. (6)
a) Alternative X
b) Alternative Y
c) Do-nothing
2. A least common multiple is necessary when using Annual Cash Flow Analysis. (6)
a) True
b) False
3. A bridge in a metropolitan area is being considered at a cost of $120,000,000. The annual maintenance cost is
estimated to be $100,000. A major renovation at a cost of $50,000,000 is required every 100 years. The capitalized
cost of the bridge at an interest rate of 5% is closest to ________. (6)
a)
b)
c)
d)
$12,000,000
$12,380,000
$122,380,000
$122,000,000
4. The capitalized cost of a series of cash flows starting at the end of the first year with $400 and increasing at the
rate of $100 for the next 5 years is closest to ________. Note: The series of cash flows from year 1 to 6 repeats
forever. MARR = 6%. (6)
a)
b)
c)
d)
$10,550
$6,785
$5,000
$7,912.50
5. A 20-year corporate bond that pays an interest of 2% per quarter has a face value of $10,000. If an individual
wants a rate of return of 12%, compounded quarterly, the worth of the bond at time “0” is closest to ________. (6)
a)
b)
c)
d)
$6,980.20
$16,040.20
$7,012.20
$10,000
6. Bully Dawg borrowed a sum of $5,000 from his uncle. After 3 years he paid a sum of $5,000 and paid another
$1,000 after 4 years (thereby paying off the loan). The interest rate Bully paid if the payments were based on yearly
compounding is closest to ________. (6)
a)
b)
c)
d)
5.93%
6.9%
7.81%
8.1%
7. Financial data related to three different alternatives are provided in the table below. Assume that alternatives are
replaced at the end of their useful lives. MARR = 8%.
P
Q
R
Initial Cost
$5,000
$1,000
$2,500
Annual Benefits
$650
$0
$350
Salvage Value
$5,000
$1,760
$2,000
Life (years)
20
5
10
•
The EUAC of alternative P is closest to ________. Hint: Compute EUAC using the standard
methodology. (6)
a)
b)
c)
d)
•
The EUAB of alternative Q is closest to ________. Hint: Compute EUAB using the standard
methodology. (6)
a)
b)
c)
d)
•
$400
$450
$325
$650
$200
$0
$352
$300
The EUAC of alternative R is closest to ________. Hint: Compute EUAC using the standard
methodology. (6)
a)
b)
c)
d)
$626.25
$285.25
$125
$234.50
8. In order for a higher-cost alternative to be attractive, the incremental rate of return must be ______________. (6)
a)
b)
c)
d)
Greater than MARR
Less than MARR
Greater than or equal to MARR
Less than or equal to MARR
9. The year-by-year cash flows for alternative A (from problem #10) are shown below. In addition, the calculated
ROR is shown. The equation needed for Excel to calculate the ROR is _______. (5)
a)
b)
c)
d)
=IRR(C2:C10)
=ROR(C2:C10)
=IRR(C2,C10)
=IRR(C3,C10) + C2
10. The equation needed for Microsoft Excel to calculate the present worth of alternative A (shown below) is
_____. As a reminder, MARR is 12%. (5)
a) =NPW(.12, C2,C10)
b) =NPW(.12, C3:C10) + C2
c) =NPV(.12, C3:C10) + C2
d) =NPV(C3:C10, .12) + C2
11. Mrs. Bully Dawg bought a corporate bond from IBEM Corp. for $100,000. The face value of the bond is
$100,000 and will mature in twenty years. A $2,500 dividend is expected to be paid every quarter. If Mrs. Dawg
plans to keep the bond until maturity, the effective annual rate of return she is getting on this investment is closest
to ________. (6)
a)
b)
c)
d)
10.38%
10.00%
12%
9%
12. A business is considering two investment alternatives. The MARR is 12% per year. Determine the end-of-Year
cash flows (year-by-year) necessary to compute the ROR needed to make a decision. Note: You do not have to
solve the problem. Just set up the necessary cash flows. Assume at least one alternative is acceptable. (6)
A
B
Initial Cost
$10,700
$5,500
Annual Benefits
$2,100
$1,800
Salvage Value
$1,000
$500
Life (years)
8
4
13. The RORs for individual alternatives in problem #10 are as given below. The incremental ROR is also given.
Based on these RORs, develop a choice table identifying the range of MARRs over which each alternative should be
selected. Note: Do-nothing is an option. (6)
ROR
A
B
A-B
12.35%
14.35%
10.25%