Practice Final Exam
IE 1040
Spring, 2008 (2084)
Practice techniques
1.)
Find the PW, AW, and FW of the following investment (Before Tax):
Initial investment = $100,000
Annual savings = $35,000
Life = 5 years
Salvage value = $20,000
BeforeTax MARR = 15%
Answer:
PW = $27,271
AW = $8,136
FW = $54,844
Chapter 6 (Comparing Alternatives)
2.)
Two alternative boilers are being considered for a particular plant.
The following costs
are relevant:
Boiler A
Boiler B
Initial Cost
$50,000
$120,000
Useful Life
20 years
40 years
Salvage Value
$10,000
$20,000
(at the end of Useful Life)
$9,000
$6,000
a.)
If the plant’s MARR is 10%, and the repeatability assumption is valid, which boiler
would you recommend?
Answer:
AW
A
= $14,700; AW
B
= $18,320; Select Boiler A to minimize costs.
b.)
If the repeatability assumption were not valid, what would be another way to compare
these two alternatives (calculations are not necessary)?
Answer:
If you use the coterminated assumption and a 20year life, find the imputed market
value of Boiler B at the end of the 20 years and compare the PWs based on 20 years.
You could
also determine the costs of a second Boiler A for years 21 to 40 and compare on a 40year life.
Chapter 11 (B/C Ratios)
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 Spring '08
 KarenBursic
 Depreciation, salvage value, Practice Final Exam, $18,320, $18,888

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