EconFinal

EconFinal - FNAL EXAI(Show all work ENGRleP-Summerloos Name...

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Unformatted text preview: FNAL EXAI (Show all work) ENGRleP-Summerloos Name Kali/h LOLLXL/ Final Earn - 100 Points 1. This is a 120 minute. closed hook exam worth 100 points The exam consists of 15 multiple choice questions and 3 problems. It is 9 pages including this cover page. Ensure that your exam is complete. 2. Place your name on each page in the space provided. Feel free to dismemblc the exam; a stapler is available to reattaeh the page; when you are finished. When reassemhling your exam. ensure you have all pages (including this cover page). 3. Authorimd References: pencil/pen. straight edge. calculator, printed formula sheets and interest rate tables. Do not write on the formula sheets and interest rate tables and hand in the pages with your exam. 4. Show all your work! Unsupported or missing work earns little or no partial credit. This is especially important when you are using a calculator-stored formula. 5. Extra paper is available at the front of the classroom. Attach the additional page; to your exam when you turn them in. Label additional page: with name and problem number. 6. Once you have completed the exam, fill in your departure time at the top ofthis page. Turn in your exam at the front ofthe class. Possible5 Points Problem I (45 points) - Multiple Choice. Each question is worth 3 points Some require small computations and some are more insight rather than computation. Circle the correct answer. I. You are going to take out a loan with a 12% nominal interest rate. payments semiannually. compounding monthly. Then. the periodic intermt rate to be used in loan payment mlculations is: a. 12% b ‘ (- b. 1% 1w, “pg—3 _] avloh a m “1, c. 6% at 6.2% 2. You are going to take out 3 315000 loan for 4 years. You use a $5000 down payment. The loan will be amortized. has a 12% nominal annual interest rate. payments monthly. and compounding monthly. The loan payment is: (:9 $232 [A]? ).01,\uom\ .— 29333 c. $1205 (1 None of the above 3. You are considering two alternatives. Both are investment projects with simple cash flows and both have a positive cash flow in year 1. Alternative 1 has an [RR of 15% and Alternative 2 has an IRR of 20%. Altenmive 1 requires a larger initial investment than Alternative 2. MARK is 12%. Then. a. You should pick Alternative 1 as it is better b. You should pick Alternative 2 as it is better c. The alternatives are equivalent since both have IRR > MARR @ You cannot tell which alternative is better without more information 4. In 2000. a new truck would cost $3 SOImonth. Maintenance was $200/year and tires were SSOO/ymr. In 2001, the tmck would cost “GO/month, maintenance was $225fyear. and tires were $600/year. lfCPl in 2000 was 140, what is the CPI in 2001? a. 161 {We : 330+ 200 i 300 : Logo . 6:; :2? Qw‘ ,— 1W) 11$ kbou : 117—5 ' T d. 122 (1.“ .— sz $5.3 {um I He J 127,3 : \uSCL Elam '7 \103 5. You are going to borrow $15,000 from a bank at 10% per year for 5 years. You propose the following 3 payment plans to the bank: Plan 3 all at end Using only economic criteria (bank assumes that you pay back loan). then the bank prefers: a. Planl d. No preference for the bank, all plans are equivalent 6. Say that you purchase a wed piece ofequipment for $l0000 that can be depreciated using a 7-year MACRS schedule. The equipment is 2 years old when purchased. The depreciation amountinthe3rdyearthatyouownthemachincis: a. 2449 (D 1749 c. 1249 d. 893 7. Assume that you deposited $100,000 in a savings account paying an interest of 12% per year. compounded monthly. You wish to withdraw $3000 at the end of each quarter. How many montls will it take to deplete the balance? b. (100.000 / 3.000) months c. (1 12,000/ 12,000) years @ You will never deplete the account a (100,000! 12,000) years £3D5C \ \C (“Mir {AMP q LUNA/11’ 8. Your company is in the 35% tax bracket. You have a project that increases revenue by $80,000 and increases expenses by $35,000. The tax bracket remains unchanged. How much will the company’s taxes change? a. increase by .35 ‘ $80,000 34‘“ 5 236000 ~ 350‘“? @ increase by .35 " $45,000 — L ‘ 6. decrease by .35 ‘ 335.000 — l3 OLL d. taxes will not change unchanged 9. You are given the following cash flows for a 5 year investment project —_— Salv ' Value Revenue LnL_5 The correct formula to compute AE(lO°/o) is: a 400,000 - (A11; 10%, 5) - 55,000 + 15,000 - (MP, 10%, 5) ® 400.000 - 55.000 . (AIP, 10%. 5) + 15000 . (PIF. 10%. 5) c. -100‘000 ~ (All! 11m 5) - 55,000 + 15,000 ' (NF, 10%, 5) d1 (-100.000 - 55.000 + 15.000) ‘ (AIP. 10%. 5) I0. In computing the equivalent present worth of the following cash flow series at period 0. which of the following expressions is correct? A= $100. o l a l . s o 1 . a. P - s lOO(P/A.i.4)(P/F.i.4) b. P = s l00(F/AJ.4)(PIF,i,7) c. p = s 100(P/A.i.4) Q) P = s 100[(P/A,i.4) + (P/A,i,5) + (P/AJ.6) + (mam) ll. You lay l5.000 yards of concrete in a year Compute a cost/yard factor based on the following information labor $l2.00/hr electric $l8.000/yr maintemmoe $200/month prooesstimc l.5 hrs/yard a. $1800 @3333 “N“ ’ '5 W) '5 22500 mm d. $19.20 . * (0:1 «111m ; 'mg x 11:),7’10000 Mink m] (g 01 f3 16 + town \1 {fix 5'" ‘1' .200 ‘ \rz/ *1 Mk : $101 01100 1&1 your I2. The following information on 3 mutually exclusive projects is given below. Project mm” [RR A $1,000 56% B 51200 67% c 51500 43% All three projects have the same service life, and require investment in year 0 only. Suppose that you are provided with the following additional infomtation about incremental rates of return between projects. lRR(B -A)=85%anleR (C - B)-30% Which project would you choose assuming that MARR is 25%? a: Project A b: Project B (7:?! Proij tf Impossible to determine with the given information 13. How much should you put into a 5% savings account in order to have S I 5.000 in 5 years? a $11,752 “n ‘g . 511.755 9:;(I. '4, : 150000 aosl c. $6.000 H. You are charged with estimating the cost of an automobile assembly plant and you believe a power size model is appropriate. You estimate that the economy of scale factor is .75. Your plant is designed to produce 4000 cars per year. A 2000 car plant cost $200 million this year. Whatisthecostofthc4000carplant? @7 336 Million b. 327 Million c. 400Mi|lion ‘ . '3 d. 119 Million '7‘ " _ r :5 15. Here is a plot of PW(i) for two alternatives for i = .0] to .27. Revenues are positive and costs are negatives. For MARK = 15%. which alternative do you choose (using only economic arguments to make your selection) @ Allemalive 1 b. Alternative 2 c. Both are equivalent d. You do not have enough information to select between alternatives Problem 2 (IS Poi-ts) - Our firm is buying new phone equipment. It originally costs $12,000. but we got a deal for $9,000 since we know the salesperson An additional $1,000 is required for delivery and setup. We pay for the system using $5000 now and a loan ofSSOOO at 10% per year compounded that is all due at the end ofyear 8 (no loan payments in years 1 through 7). ln year 8, we will sell the system for $2000. The new system will increase annual revenue to $5.000. The maintenance contract is $500 per year in year I and will increase by $250 each year that we have the system. The company’s income tax rate is 35%. Capital gains are taxed at 28%. Assume that all dollar values represent actual dollars. Fill in the statement for years 0 and year 8. Hint ’ This is very similar to a cash flow diagram. m — 7, 9'00 + 255.7 . \2. Loan Interest F: PKLHI — ECCO ’5 I leSll -1m I Problem 3 (20 Points) - Your company is looking for a new workstation design and tooling to reduce lost time due to injuries. You have two altumtives with the following cost structuras (annual costs and savings start in year I): The tables have been included for your reference. Annual 53 I; = +36,SOO ' Useful life = 10 ears Useful life = l5 cars .‘ : Salv _e = $8,500 Ignore the impact of taxes and you will pay cash for the workstations (no loans are taken out)? a. (5 points) Compute the interest rate. 1‘. for the LABORSAVE option. 9 : [3'0 poo , V l -’ o ”I. A : Can". “u: ‘(fiblboj pl" .mr 2 b. (5 points) For a MARR value of 12%. compute AE (MARR) for the ERGOSTATION K- Mwfi (“12,2 7\, . 5 7L‘LV(A\F \VL'IJSl ~LIUOO ~ ISDO L BIOSOO 4» 9551:0[9'51 u”, \j‘ M; t m": r ”1303 33‘ E c. (8 points) For 3 MAR of 12%, which alternative should you choose? Support your selection with calculations and/or a quantitative argument. wage-cc{min-M _ 3M3 vzooo 430,000 M; m. ”rink r 317 01 ‘17 flak-mm *‘u MGV AE Jrk. ' at g 7AEL ((‘TLL My Ah“ (1. (2 points) For a MARR of 12%. would you borrow "5mm? Qhe equlpment If you could bomw from a bank at 10% (afler taxes)? Why? it" ‘3 L (LL ‘0“:\ ‘ )" \U‘H (-QSLL\ L '1'“, '3 P." ('1‘1 1' \'-.‘\L(n(\.1_t V] 7‘ r’/, A? 5'1( PM“ I Problem 4 (20 points) - An electric ear can be purchased for $25,000. The estimated life of the car is IO years. Every 5 yam, a new set of batteries mist be purchased at a net cost of$2500 (this includes the made of the old batteries). Armual maintenance is estimated to be $700 per year. Cost of battery recharge is 3.015 per mile traveled. Salvage value of the ear at the end of year 10 is $2000. Alternatively, you can buy a gas guzzling car. The purchase price is Sl 8,000 and the cost to drive the car (including gas, maintenance) is $0.25 per mile. The mlvage value at the end of 10 years is $1000. Use it - miles/wart Assume that MARR is 10%. 133%?) $21. What isthebreakeven mileage where youareindifferent betweenthetwo alternatives \ 0“ " i‘ (rcmcmbertogctintoapmpertimefi'ametomakecom ‘ n)?I5pts ,3 rr 9;. D @fié’ff‘fi umv .m 0‘} n .0 [W if: :2) 1“)" ‘p____‘» ZED—CC (All’llo'lo) l0) 4' 2500(9lF) ‘0/-]5) - LC C‘- J . I} ‘0‘ "3 2500(N lo'l.)I°M+7co + .msx I . V _ 3&6?) “3.”; bac‘r\((\) AEP : Losns + \Cvgx {L AE(SSS%E,75WISX lgoockP‘JPAo'IoIID) -lbO-L‘(P\?llc'l.,io‘) L KLSX AEG: ZSL‘3\ ,r .ZSX : S€Ll5.76*.0\§)( ‘ x4: 07% MW m mm 25 L13J+25x : (05 I2. 8 holsx . K 7‘ “03‘“ (“Cui- / year w-er 10041.04; WLWA b. If I drive the car an average of 15,000 rmles per year, what alternative do you prefer? Spts 1* i: QCcltrRA 3'0 UM l4“ Lac «MM (3er on SM i4- 2’ mikmwm h b< W’Ck‘“ AEGUSoom : (02%;)0. ficfl A“ DM‘” Alltrmfi‘f/C We] bWW >4) W m \anA N18 M000) 5 S7 73 ‘75 ...
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