Exam2_2006sol

Exam2_2006sol - Exam 2 IE 226 J. Hartman Spring 2006 Name_...

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Exam 2 Name___________________ IE 226 J. Hartman April 13, 2006 Spring 2006 INSTRUCTIONS: Answer all of the following questions on the following eight pages. Show all of your work (unless you do not want credit). Point values are adjacent to the problem number. [2] What is the purpose of a utility function when evaluating mutually exclusive options with multi-criteria? [2] Is the project balance a measure of worth? Explain. [2] Give two reasons for tracking an investment project after it is accepted and under way. [2] When evaluating multiple mutually exclusive projects with multi-criteria, what does it mean to have a project be dominated by another project or projects? [2] Is the payback period with interest a measure of worth? Explain.
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defined below with their PW values at the MARR of 20%. a) Which one, if any, should be selected? Assume that the cash flows have been estimated, but are subject to error. Defend your answer with logic and analysis. State any assumptions you make. While the present worth of option A is higher, it is clear that it is a riskier project given the timing of the cash flows. The project balance of B illustrates a much safer project with an earlier payback with interest period. Thus, given that the investments are in the nature of $100 million and the returns differ only by $2 million, it appears that B may be a better choice – especially for the risk averse decision-maker. Time
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Exam2_2006sol - Exam 2 IE 226 J. Hartman Spring 2006 Name_...

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