Econ Exam 2 - xi- Name (first then last) gm! :4 9' lacL -3-...

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Unformatted text preview: xi- Name (first then last) gm! :4 9' lacL -3- 200‘] 5/ [ Exam #2: Engineering Economics I Fall 2007 An investment of $10M now will return $20M in 5 years. 1. Is this a simple investment? yes Explain. , _ :M T} A GAL.) or“, affirm 1250914.); 40.04:. "‘3 1 o "i - .1 f 5 3.0 M ' 2. What is the IRR? Show & explain your work. Also circle the correct interval. K '— M: a) less than 12% "MM 0" *OXL+O’<3+ Oxfi-rZoxs H" b) [12%, 13%) ‘ 3“" Li“ _‘ X : #3“! c) [13%, 14%) v . I, _ - . 61) [14%, 15%) I u *— Ti ' ‘ i «w ' ' e) greater than or equal to 15% ******************************************************************** 3. I have a decision to make: investment opportunity A or opportunity B. Both have the same revenue: $30,000. A has no past costs and 0&M costs of $20,000, while B has sunk costs of $50,000 and no 0&M costs. Which opportunity is best? Explain. AA box "‘~0"'w ~\ ‘Zr‘lu @513 Tic; .23 a 533.; mg; cc. ‘1‘; f, /,r bunt 005+ does MT oowd' [KL ewe-latchouc 2’: Is Ti“ ~ . ', < ' . r .- , Prove? B “LEW (L ktfi‘fxer’ 15c; {cl “SW-F '6. 0645 Mt 9703663 A 3U ‘1‘ l'muisTvutmT by“ optvon, 25c. “ r; -; 6.“; Xx" A $10,95‘J 3v “3' “A v. ' i1 “ Hugs»... u . _. : ffl cage Li ‘ I ’ » - r . )' ‘v N": ******************************************************************** 4. The cash flow for PrOJect X lS given by thlS $150,000 diagram. The company MARR is 12%. What is the IRR? X 2 h, l-M. “10,000 + 150 000 X ‘ 3e ecu x1 $30,000 * $100,000 , ,\ x 1 :NL " F : Eroo Cum.) +rso](/.12) —3o :0 r. ~ if, I l ’ '7‘11’47 4, : j: - — JLiZI‘l _' Exam#2 - Engineen‘ng Economicsl - Fall2007 page2 5. For the income statement below, calculate all the blanks leading to and including the taxable income. Income Statement Revenues .- — — _ _ — _ — — _ _ _— — 6. The Bevo Project purchased a piece of equipment for $100,000, and used the MACRS 3-year depreciation method. In the income statement that follows, fill in the depreciation amounts for all the appropriate years. I—n .— -—- Revenues — -____- .— .— - __ I Wm :1 351%.“ 7. In the problem above, what are the “straight line 3-year depreciation" amounts for each year? atrwfiw’ lac. deg-geld.“ .‘ D ; I‘S Exam #2 - Engineering Economicsl - Fall 2007 page3 For the cash flow statement below: the investment in equipment was depreciated using the 3-year MACRS method. The gains tax is 34%. 8. what is the book value of the equipment at the end of year 2? i3cuLUCi‘iiA-L, ; ‘ZOCCC’ '" \ HOQ‘CJO T ‘35,'5°*°\ g. : 8 cease 9. what is the gains tax? Put that value in the statement in the correct location. QQ‘KS '~ 114qu 'L’Jalgvg -~ ‘; frag, at?“ —_ Saigc‘oat lav/C, Deprcc area 5i)" 5W“ *i “ C :flio,ooo -_-_--.--l V“ ‘ “ : mm 3“ é -___-_ e 1.9292. -_—-___ “m II— - —-——_ a. nses _-_-- E— II— E— El— -__-—_— —___- Income Taxes _____ -___-_— flm_-__- -_--___ -__—-_ .—--—-— IEI-_—_- mm———_— Dereciation _ $40,000 $53,340 $8,892 IE—_--_ -___ IE—___ IB——_- Financial Activities —__-_ IE-_-- In muse) < e m) imam Net Cash Flow (96 coo) _ Continued on the next page. Exam #2 — Engineering Economicsl - Fall 2007 page4 Continuing with the income statement/ cash flow statement on the previous page. To fund the $120,000 capital expense, half is taken from the company investments, which has a return rate of MARR = 15%, and the other half is funded from a 4-yr loan taken out at 12% APR. 10. Fill in rows 6, 18, and 19 appropriately. Show work. A = 60 000 (94. ,az q) I Yrv A Delft “UV g‘vT Pr "»g\pc;\ :13 1,176: I nIQTSa “50060 57,100 $11552. z Dc“ new : D‘bT*l"\T€—I’€$r ‘A “bribing flSGQ3176 ‘8 “405% .7.“ Primeeal __ A _ 'K,‘U,cx‘_ 3 ‘ ‘~"‘ '4 i 1‘1 a l5 MS 2’s 55.31.!» 14006. ‘ u‘ ""‘ 1 \Z°/o “1 Debt- "\ fifit‘chlL—lél: 81'” SH 8 ’7CH‘1'4’39 D ****************************************************************** The marginal Federal tax rate is 25%, and the marginal tax rate is 10%. 11. What is the marginal rate for the total tax liability? ***************************************************************** I paid $100,000 for a super terrific gizmo. After 5 years of use in my hi-tech goofus factory, I sold it for $20,000. The company MARR = 12%. 12. What is the equal payment capital recovery cost factor plan? 7 ' P . ‘90») ~ (00 000 ’ a0 OOOC/fi 5.) a%<sea"< :54 (,‘l 5‘7 ; 6 H... . , Exam#2 - Engineering Economicsl - Fall2007 page5 The EE Company makes a taxable income of $400,000. My biotech division will produce an additional taxable income of $100,000. 13. How much tax will my project pay this year? ,ooooo ' ch :agqooo 14. How much tax will the entire company (including my biotech division) pay this year? ASQQ 500 6:30 — $35600) -r [(351043 :1; .70000 *************************************************************** Exam#2 - Engineering Economicsl - Fall 2007 page6 15. Let’s put it all together. The cash flow chart is given below. Complete columns 0 and 1 only in the chart with the following information. a. depreciate using the 3-year MACRS method. b. borrow the entire $100,000 investment at 12% APR over 4 years. c. use the 35% income tax rate and gains tax rate -___-_ -—-—__- II-lm $90.0 -—-———_ -_--_ Ema—_lmmm “___- “___- -——-__- —nmu-- Income Taxes __- -—_--- “mm-__— -—_-—-_ Cash Flow Statement ___-_ -—_———_ [El—___— IE——___ Ill—__— Salvae _—_-— -—_-- = - ___— ___- lam—- -—_—_— Net Cash Flow _— ao A: [oloooo CA/‘P/ 12.1.3“) =83£€Lo ...
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This note was uploaded on 03/19/2008 for the course EE 366 taught by Professor Pore during the Spring '08 term at University of Texas at Austin.

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Econ Exam 2 - xi- Name (first then last) gm! :4 9' lacL -3-...

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